The Kenyan Banking Sector: The Interest Rates Debate

For the past few weeks, the main topic of discussion in Kenya has been about the high interest rates being offered by the Kenyan banks.

Most Kenyans have been calling on President Uhuru Kenyatta to sign into Law the bill aimed at curbing interest rates. The Bill seeks to keep the interest rates to at 4 percent lower than the Central Bank of Kenya’s rate.

The Bill, if signed into law, will limit Kenyan banks in terms of setting out the interest rates they impose on their borrowers. There has been concerns among Kenyans and other stakeholders in a manner in which commercial banks in Kenya have been imposing their interest rates. At one point, rose as high as 21 percent.

Kenya Bankers Association has been up in arms, guns blazing, giving reasons why the interest rates Bill should not be signed into law. According to the association of lenders, signing the Bill into law is going to hurt the economy as many people will take money from them and most will fail to pay back. In a more twist of events, the Kenya Bankers Association came up with their own proposal on how they would like the interest rates to be set while calling on the President not to assent on the Bill. The Central Bank of Kenya is on the side of the lenders arguing that if the Bill is signed into law, it will force lenders to go into a cautionary lending that will eventually lead to what financial analysts call ‘shrinking’ lending.

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According to a financial analyst, Mr. Steve Biko Wafula, Commercial banks should also be stopped from trading with the government. According to him, banks have been proud about their operation and not considering the pain their borrowers go through because of their trading activities with the government.

“The Government of Kenya is one of the greatest borrower and it often borrows at any interest rate. The government will always pay back and the returns are usually huge,” he said.

Mr. Biko said that if the government will stop borrowing from the banks, some sanity will be restored in the sector. “But if the government should borrow, then the interest rate should just be the same as that directed to Kenyans,” he added.

Asked whether the President should assent to the Bill, Mr Wafula said, “The President should have signed that Bill into law like yesterday.”