President Uhuru Kenyatta has signed into law the Banking Amendment Bill into law. The Bill intends to regulate interest rates that are applicable to banks’ loans and deposits, capping the interest rates that banks can charge on loans. The president said that since receiving the Bill, he had consulted widely and it was clear to him from those consultations that Kenyans are disappointed and frustrated with the lack of sensitivity by the financial sector, particularly banks. He added that the frustrations are centered around the cost of credit and the applicable interest rates on their hard–earned deposits.
He noted that this is the third time that the National Assembly is attempting to reduce interest rates to affordable levels. In the previous two instances, dialogue and promises of change prevailed and banks avoided the introduction of these caps. In those instances, banks failed to live up to their promises and interest rates have continued to increase along with the spreads between the deposit and lending rates.
“Despite having one of the most efficient and effective financial markets, Kenya has one of the highest returns-on-equity for banks in the African continent,” The president said in a statement, “Banks need to do more to reduce the cost of credit and ensure that the benefits of the vibrant financial sector are also felt by their customers.
“Upon weighing carefully all these considerations, on balance, I have assented to the Bill as presented to me,” he said “We will implement the new law, noting the difficulties that it would present, which include credit becoming unavailable to some consumers and the possible emergence of unregulated informal and exploitative lending mechanisms.”
He added that the government will closely monitor the difficulties, particularly as they relate to the most vulnerable segments of our population, and they will also accelerate other reform measures necessary to reduce the cost of credit and thereby create the opportunities that will move the country’s economy to greater prosperity. “We recognize that banks have done much in the last decade in terms of innovation and promoting financial inclusion and look to their doing more in that direction,” he said.