Borrowing Above the Rate Cap Might Attract Ksh 1M Fine Or 1-Year Jail Term

Kenyans will have to be cautious when borrowing as they might end up paying a one million fine or face a one-year jail term if the new rate cap bill is adopted by parliament.

The bill that seeks to entrench legal restrictions on lending rates, will have penalties imposed on breachers who will be found borrowing loans beyond the stipulated rate caps.

The bill that is yet to be adopted, was proposed by a legislator Jude Njomo, in September 2016. The cap limits lending rates to 4 percentage points above the central bank rate, now 9.0 percent. It is supposed to cut the costs of borrowing for businesses and private consumers, hence boosting loan access.

As opposed to the current regime of lending penalties that punishes the bankers, bank CEOs, and lenders, the proposed law will instead punish borrowers.

“As it stands, the penal provision under subsection (3) is couched in discriminatory terms as it applies only to banks and financial institutions yet the legal obligation is aimed at both the bank/financial institution and the borrower/customer… amendment) is therefore necessary as it seeks to create a penal provision that is not discriminatory, ”Njomo suggests in the bill.

The High court had earlier declined the bill stating that it was not in line with the constitution, but Mr. Njomo made the necessary adjustments to make it relevant.

According to the High Court, some terms in the proposal like ‘credit facility’ and ‘Central Bank Rates’(CBR), could easily be misinterpreted and thus gave the parliament a year to redraft the bill before it is passed.

Following his adjustments to the proposal, Njomo replaced the term credit facility with the term loan and the defined the term ‘rate’ as captured under section 64 of the Central Bank Act.

Suspended Treasury Cabinet Secretary, Henry Rotich had earlier proposed for the repealing of the rates cap and Njomo’s bill came in handy after the aforementioned proposal.

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