If you have been saving your hard-earned cash you better keep it up, because external sources of finance like bank loans will soon be out of your reach. Members of parliament yesterday left Kenyans at the mercy of banks after they failed to reach the quorum necessary to overturn President Uhuru’s recommendations to remove the interest rate cap law.
Only 161 members of parliament were present against the minimum of 233 members needed for a vote. The house could not debate over the matter and the proposal was therefore passed without a vote. Once the President has signed the Finance Bill, new interest rates charged on loans will be left to the discretion of banks, as opposed to the capped interest rates that have been in place since September 2016.
The perceived fear among both members of the public and legislators is the return to the chaotic pre-capping regime which saw the charging of exploitative interest rates which touched a near high of 30 percent in some cases. Banks will now be able to lend to perceived high-risk borrowers such as SMEs and households.
Gatundu South MP Moses Kuria who sits at the finance committee backed the lifting of interest caps noting the constrained effectiveness of monetary policy is impacting the economy. Shylocks, unregulated lenders and the general decline of economic growth from the locking out of small and medium enterprises (SMEs) from the formal credit market were possible grounds for removal of the rate capping law.