Kenyan banks will cut interest rates by almost half if a Bill before Parliament becomes law, a step that will promote entrepreneurship.
According to the Bill, banks will charge at most four per cent of the base rate set by the Central Bank of Kenya. Some banks currently charge as much as 25 per cent interest.
The Banking (amendment) Bill seeks to set a limit to what banks charge borrowers although the Central Bank has warned against such a move.
The Bill, sponsored by Kiambu Town MP Jude Njomo, is set for the second reading after it was tabled last December.
“A bank or financial institution shall set the maximum interest rate chargeable for a credit facility in Kenya at no more than four per cent, the base rate set and published by the Central Bank of Kenya,” says the proposed law.
The base rate is presently set at 11 per cent.
Mr Njomo on Sunday said high interest rates discouraged borrowers, leading to less entrepreneurs and lack of jobs for the youth.
“Our banks have gone amok. They should be controlled. Some are charging as much as 25 per cent. Unless we tame them, our people will not be able to borrow. Youth will not be enterprising because they cannot finance businesses,” Mr Njomo said.
The lawmaker said the proposed law had been well received by colleagues and he expected it to be passed and signed into law.
The rates have been high following the weakening of the shilling last year.
The CBK is opposed to the capping of lending rates, saying they should be left to market dynamics.
CBK Governor Patrick Njoroge recently told NTV any attempt to cap interest rates was against global practice.