President Uhuru Kenyatta has rejected the Finance Bill of 2019 which sought to retain the interest rate cap. His rejection leaves room to repeal the interest rate cap, which posed a threat to the economy. According to Bloomberg, the head of state refused to sign the bill into law as long as it provides interest rate cap.
However, Parliament could still veto the President’s move by casting two-thirds of its total votes to push the bill. Nevertheless, CBK governor is optimistic that policymakers would choose otherwise.
“It is improbable that Parliament will come up with two-third votes. We believe that we are in a position to overturn the interest rate caps,” Patrick Njoroge told Bloomberg.
Interest Rate Cap Repeal Will Provide Credit Access
The interest cap which came into place in 2016 restricted banks to a 4 point from CBK’s benchmark. While the initial objective was to improve lending terms to borrows, the cap restricted lendings to SMEs as banks became risk-averse. As a result, banks offered to lend to the government as opposed to the private sector.
Overturning the rate cap will enable banks to lend more to the economy, therefore, the private sector is likely to grow due to better access to loans.
“If you want small and medium enterprises to continue strengthening to employ people, you have to let go of these interest rate caps” Njoroge added.
Still, critics feel like the president’s move poses a threat to consumer protection. Some leaders argue that the laissez-faire approach to interest caps leaves consumers at the mercy of banks. In response, the governor assures Kenyans that banks are moving towards customer-centric models, and will, therefore, uphold interest of the consumers.