Treasury Cabinet secretary Henry Rotich addressing the press. (Photo: Jenipher Wachie/Standard)
President Uhuru Kenyatta has expressed his frustration over the inability of Kenyans to get credit from banks despite the lowering of interest rates.
The President, in his State of the Nation address, said his administration would look into the matter before the elections.
President Kenyatta said he was aware of the concerns of small and medium enterprises, which are unable to get credit despite the fact that loans in Kenya are the most affordable in the region after the capping of interest rates in September last year.
“On the issue of access to credit for SMEs, it is unfortunate that the unintended consequence of the capping of interest rates was a slowdown in lending by our commercial banks,” the President said.
He added: “This is an issue that concerns us and is one that I will actively seek to resolve so that credit can start to flow again to the real drivers of our economy.”
Treasury Cabinet Secretary Henry Rotich (above) told the Standard: “The government is monitoring the situation with a view of taking appropriate action, including reviewing the way the capping operates.”
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This comes just a week after Central Bank of Kenya (CBK) Governor Patrick Njoroge was quoted by the Wall Street Journal as saying that the cap on interest rates was “temporary”.
Sources at the CBK said the governor’s remarks were based on a statement by the President when he signed the caps into law. At the time, he said the effect of the law would be reviewed.
CBK had to throw out the Kenya Bankers Reference Rate introduced in 2014 as a base rate to calculate the cost of credit following the coming into force of the Banking Amendment law of 2015.
Last year, CBK said the law had complicated monetary policy while the International Monetary Fund (IMF) on Thursday asked the Treasury to remove the interest rate caps.
Last year, Kenya Bankers Association CEO Habil Olaka intimated that the rate capping law was more of an experiment when he noted the impracticality of implementing it, which he said would pose a challenge in adjusting it to CBK’s monetary policy rate.
“The reality is the Central Bank Rate may change from time to time but now that there is a law and banks don’t make laws, we will have to try and implement it despite the difficulties. We had highlighted all these difficulties but the message is we need to experiment and if it doesn’t work we will reverse it. Meanwhile, we have to suffer the consequences of that experiment,” Olaka said.
Concerns among policy makers was roused by emboldened legislators who want to tighten the rate cap law further to protect consumers from additional fees and loop in mobile loans.
Kimani Ichung’wa of the Public Investments Committee has sponsored the 2017 Banking Amendments law that will also require the State to strictly bank with lenders where government holds a stake, hoarding deposits from wholly private commercial banks. The market regulator is worried that this will kill the mobile lending business, which would frustrate small traders.