Kenyans, who rely on loans for businesses or their day to day activities, should brace themselves for higher interest rates as Members of Parliament gave a nod to President Kenyatta’s recommendation to have the interest capping law repealed.
The move by the National Assembly Finance and National Planning Committee chaired by Kipkelion East MP Joseph Limo comes just days after the President expressed his reservations with the interest rate caps introduced in September 2016.
In a memorandum read out to the lawmakers on October 17, the President stated that the interest rate cap has caused “unintended effects that are significant and damaging to our economy.”
In the recommendation, Kenyatta stated that the rate caps have lowered private sector credit and severed monetary policy transmission by the Central Bank of Kenya (CBK).
The Head of State added that the rate caps led to the mushrooming of shylocks and other unregulated lenders who took advantage of desperate Kenyans.
“Shylocks and other unregulated lenders have taken advantage of the effects of capping to lend to desperate citizens at exorbitant rates in a predatory manner compounding the already existing problem of lack of access to affordable credit facilities due to prohibitive costs,” said President Kenyatta.
Following the lawmakers’ decision, the President is expected to sign into law the Finance Bill 2019.
The controversial bill remains debatable with pundits arguing that the move will strengthen the shilling while others feel the decision favours commercial banks as opposed to small enterprise businesses and the ordinary Kenyans.
The MPs had earlier expressed the need to have the rate caps maintained and only sought the law to be amended to align itself with the High Court ruling.
In a report tabled before the House on Tuesday, the lawmakers now want the text in President Kenyatta’s memo to be amended so that those already servicing loans are not affected after the signing of the bill.
“Notwithstanding the repeal of section 33 B, any agreement or arrangement to borrow or lend which was made or entered into…shall continue to be in force on such terms, including interest rates and for the duration specified in the agreement or arrangement,” the report proposes.
The proposal by the lawmakers, however, will have to pass through the speaker, who will be required to make the determination on whether any proposed amendments accommodates the President’s reservations.
In the case where speaker Justin Muturi finds out that the proposal does not fully accommodate the President’s reservations the assembly can pass the bill by a vote supported by two-thirds or at least 233 of the 349 lawmakers.
However, if it fully accommodates the president’s recommendations then voting is by a simple majority.