Should the Interest Capping Law be Faced Out?

The debate to cap the lending rates by the commercial banks in Kenya kicked off when the rates started moving through the window for the majority of Kenyans, especially the Small Medium Enterprises.

At that time that the debate was raging own, the lending rates had moved as high at above 20 percent, greatly hitting hard on Kenyan who owed banks then.

A reprieve came through, or let’s just say it appeared to have come through when finally, President Uhuru Kenyatta, signed into law the Interest Capping Bill.

According to this law, banks were bound to lend to their customers at the rate, not more than 14.5 percent and with the recent CBR directive from the Central Bank of Kenya, they are supposed to lend at 13.5 percent.

The capping of the lending rates led to commercial banks in Kenya refraining from lending to the Small Medium Enterprises in the country and who make up to 80 percent of the economic activities of the nation.

The proponents of the law wanted to make it easy for Kenyans to have access of affordable loans from commercial banks but instead, banks made it even more difficult by refusing to lend to what they considered as ‘high-risk consumers.

In the wake of the country’s foreign debt hitting more than 4 trillion shillings, the International Monetary Fund had among other things, recommended that the Central Bank of Kenya moves with speed and repeals the interest capping law.

The debate to scrap the law was taken back to parliament where it originated. The Central Bank of Kenya governor Patrick Njoroge was taken to task by MPs to explain why he wanted the law removed.

In the end, MPs said that they do not support the decision to repeal the law. According to them, commercial banks, together with CBK are working with IMF to have the law repealed in interests, not for the country.

What do you think? Should the law be repealed?