As plans to scrap caps on interest rates gain momentum, Kenyans who have commercial bank loans and mortgages are not a happy lot. The removal of the ceiling on rates banks charge would see the citizens pay as high as 25 percent interest on normal loans and 20 percent on mortgages.
Currently, interest rates have been capped at 4 percent above the central bank benchmark rate, which stands at 9.5 percent.This means citizens are paying a fixed rate of 13.5 percent on their loans, which is a huge relief that was brought by the law that capped interest rates.
But Kenya is working to abolish the law in the coming months, less than two years since it was effected in September 2016.
The Central bank has since taken to social media and public forums educating people of why the law is not good for the country, and appealing to them to submit views on a draft paper against the caps.
“The Central Bank of Kenya has prepared a draft paper on the impact of interest rate capping on the Kenyan economy. We invite your views on the document,” the CBK said in tweets on Monday.
Central bank governor Patrick Njoroge has equally sustained talk against the interest rate caps, explaining to participants at a finance conference last week why Kenya must do away with the law.
President Uhuru Kenyatta also backs the plan to abolish the rate caps, which were effected after he signed the bill from parliament into law. He last week told a meeting in London that the capping would be removed because it has stifled access to credit by the small and medium enterprises.
“We have learnt our lessons and recognize the limitations of the law. We need to repeal it altogether or modify it to deal with concerns that have been raised,” he said.
But as the push gathers pace, thousands of Kenyans with loans are a worried lot due to the expected financial burden they will have to shoulder.
According to analysts with the push from the president, the international monetary fund and backing from the Central Bank it is a matter of time before the law is scrapped
“The plan to repeal the interest rate cap has gained traction with legal amendments to the law set to be tabled in parliament. A legal framework is being drafted to fast-track the process,” Cytonn, a Nairobi-based investment firm, said Monday.
Treasury, working with the central bank, is set to come up with a raft of reforms, whose main agenda would be to resolve the high cost of credit and in the process lead to the elimination of the Banking Amendment Act 2015.
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