President Uhuru Kenyatta has refused to sign the Finance Bill that had been presented before him and asked Members of Parliament to scrap the controversial interest rate cap.
The lending cap was imposed in 2016 and critics have often argued that the cap has been a hindrance against banks issuing a credit to Small Medium Enterprises (SMEs) as they are considered high-risk borrowers.
The intention of the interest cap was to enable the majority of Kenyans to have access to affordable loans from commercial banks. The interest rate before the cap had risen as high as 21 percent for some banks.
Ironically, the law, instead of helping Kenyans have access to affordable loans, it did the opposite as banks kept off from lending to individuals and SMEs.
Although banks have been complaining about the effects of the interest cap on their business, no single bank has registered losses as a result of the cap with MPs accusing banks of blackmail so that they can be allowed to exploit Kenyans.
If Members of Parliament will agree with the President and scap off the interest landing cap, the Kenyans who wish to get loans from Kenyan commercial banks will be left at the mercy of the lenders who will have the freedom to set their own interest rates.
According to President Uhuru Kenyatta, the interest cap is hurting the economy, sentiments raised by the Central Bank of Kenya as well as the National Treasury.
The move by the Head of State comes as a win for the banks that have been pushing for the law to be repealed. Members of Parliament are likely to go against the President and overturn his memo to them.
The International Monetary Fund (IMF) had also raised concerns about the interest rate cap saying it was hurting the private sector which will eventually hurt the economy.