During a meeting at Chatham House in London on Tuesday, President Uhuru supported plans to repeal or modify the interest rate capping law which has not made the intended impact of lowering the cost of credit for SMEs.
“We have learned our lessons and we are currently engaged with parliament with a view of either repealing or modifying it. […] We all recognise the limitations of the law, as it is currently structured, in dealing with the issues that have been raised by financial institutions. […] The impact we had hoped it would have in lowering the cost of money to SMEs has not happened. In fact, it has dried up credit in that sector,” he said.
The President further said that the process of changing that law was in progress and that it would be dealt with in the upcoming finance bill 2018/2019.
The law sets the maximum lending rate at no more than four percent above the Central Bank of Kenya’s benchmark rate which currently stands at 9.5 percent.
Since the Banking Amendment Act was executed in 2016, the number of loans issued have declined significantly.
With regards to reviewing this law, industry experts have recommended the importance of changing it while maintaining its original intention.
“The ongoing debate on the effect of the Banking (Amendment) Act 2016 capping interest rates published by Central Bank of Kenya on the economy is healthy. However, it must be done with caution,” Julius Mwatu, ICPAk chairman said.
