The Central Bank of Kenya has created the Kenya Banking Sector Charter with the aim of promoting a market-driven change in the banking sector and offer tangible benefits to Kenyans.
The charter has been proposed at a time when the rate interest caps, introduced through the Banking Amendment Act 2016, are in the review process.
The Proposals
The charter recommends that banks should eliminate blanket interest rates imposed on borrowers and to publicise hidden charges on loans in order to facilitate fairness.
The draft charter also proposes that banks should increase their lending to MSMEs by at least 20 per cent by 2020. In addition, the draft charter criticises lenders that refuse to use credit scoring mechanisms by using the same risk bracket for all individuals thereby enabling them to charge high interest rates for personal loans.
The charter reads: “The use of appropriate credit scoring techniques shall be ascertained by CBK through various avenues, including during on-site examinations and through conducting consumer protection diagnostic exercises like mystery shopping surveys.”
The charter also wants all commercial banks to upload on their websites the external and internal fees for all products on the cost of credit. The requirement will allow customers to make rational decisions when purchasing financial products.
Commercial banks are required to keep this data up to date or be subject to administrative sanctions in line with the Banking Act.
The charter also proposes that financial institutions should create financial literacy initiatives that are different from product marketing and advertising. These institutions will also be required to offer technical assistance to MSMEs so as to improve their capacity development.
Banks will submit to the CBK a plan to comply with the above proposals within 30 days from September 1, 2018, and a quarterly report on the implementation of the charter.
The charter is open for public participation where comments should be submitted by August 24, 2018.
