Kenya Banks Commit to Non-predatory Lending post Interest Rate Cap Removal

Uncapped Interest rate

Commercial banks in Kenya for the past two years fought together against interest capping law, which was enacted in September 2016. They recently won the spirited battle after section 33b of the Banking Act that provided for the capping of bank interest rates was repealed, a move that is expected to enhance access to credit by the private sector especially the Micro, Small and Medium Enterprises (MSMEs) as well as cut out exploitative shylocks and other unregulated lenders

New interest rates charged on loans are now left to the discretion of banks, as opposed to the capped interest rates. The perceived fear among both members of the public and legislators on the return of the chaotic pre-capping regime which saw the charging of exploitative interest rates might never come to life. Banks are treading carefully with interest cap removal, to avoid losing on existing businesses that are worth bird in hand.

Commenting on the repeal of section 33B of the Banking Act, Standard Chartered Bank CEO, Mr. Kariuki Ngari has reassured clients and the public that they will not see a spike in interest rates or any form of predatory lending practices from Standard Chartered. According to the lender, the existing loan facilities will not be repriced following the repeal of the interest rate cap and that the facilities will continue under the existing loan agreements.

“Over the last couple of years, we have realigned our business model and massively invested in technology to derive efficiencies which have enabled us to share the savings with our clients,’’ he said.

For the risky borrower, the bank has said that it is planning on finalizing plans to roll out a fully-fledged Risk-based pricing model for new facilities which will be announced in due course, an approach that is accommodating.

On Saturday, the Board of Directors and Management of Sidian Bank were forced to issue a statement following a circular that was making rounds on social media, implicating the bank for reviewing and increasing their interest charges barely days after the interest cap was repealed. They termed the information as untrue and assured the public is committed to acting responsibly and will not increase its interest rates temporarily.

Looks like the Banks are adopting, the ‘go slow on the uncapped interest rate’ approach to keep their existing customers and at the same time attract new customers.

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