Kenyan court rules law capping interest rates is unconstitutional

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A high court in Kenya has ruled that a 2016 law change to cap interest rates in the country is unconstitutional.

Governor of the Central Bank of Kenya, Patrick Njoroge, speaks September 26, 2018 during a press conference in Nairobi. (Photo by SIMON MAINA / AFP) (Photo credit should read SIMON MAINA/AFP/Getty Images)

The court however suspended the ruling for 12 months to allow Kenyan lawmakers to re-examine the law.

Kenya in 2016 introduced the law capping interest rates at 4 percentage points above the central bank’s benchmark rate, at a time many Kenyans had complained of the high cost of credit.

However, three years later, borrowers have been subjected to a credit squeeze as banks weeded out perceived high-risk borrowers.

The Kenyan government’s appetite for domestic borrowing has seen banks make astronomical profits, a consequence of the caps

The Thursday court ruling said the section of the banking act imposing the cap was unconstitutional because it only punished bankers and not customers for contravening the law.

“The setting up of interest caps is a consultative process that should include all stakeholders including the CBK (Central Bank of Kenya), the Executive and Parliament. These parties should consult and collaborate,” reads part of the ruling.

The National Treasury had during the tabling of the 2018/19 budget indicated that it planned to scrap the law but is yet to table its proposal on how it plans to achieve that.

The Central Bank on Thursday indicated that it was reviewing the ruling before issuing a comprehensive statement.

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