Uhuru to reject Bill on interest rates

President Uhuru Kenyatta will reject a Bill placing a cap on interest rates but propose new measures to rein in the lenders, including appointment of a banking ombundsman.

Sources familiar with consultations and briefings going on at State House said banks will also be required to set aside 10 per cent of their combined lending portfolio of Sh2 trillion for small and medium sized borrowers at concessionary rates.

Banks will also be required to place higher value on instruments of wealth such as land title deeds and reduce their dependence on calculating risks based on the assumption that a percentage of borrowers will default, therefore punishing everyone.

Briefings were on Friday going on at State House on the Motion passed by MPs requiring interest rates to be no more than four per cent above the Central Bank borrowing rates. At current rates, interest will be no more than 14.5 per cent.

President Kenyatta has been under pressure from politicians to sign the Bill while the Treasury, Central Bank and commercial banks have opposed it.
The President can either sign the Bill into law, reject it outright or send it back to the National Assembly with proposals on how it can be improved.

Sources told Saturday Nation that the President and his advisers were leaning towards sending the Bill back to Parliament with proposed amendments.

Presidency and Treasury sources revealed that the Head of State is likely to go for a win-win situation for both banks and borrowers as he seeks to end a matter that has captured the attention of the nation.

The Banking (Amendment) Act sponsored by Kiambu Town MP Jude Njomo seeks to compel banks to lower lending rates, end what is described as predatory capitalistic ways and subject them to a public complaints body.

CONSULTING WIDELY

“The President is consulting widely and listening to both sides. His aides are advising him to seek a middle ground. The President will go for a win-win situation, meaning tough measures that get banks to start considering better, less predatory behaviour when dealing with consumers,” a source at the Presidency said.

The President received the Bill on Monday from the Speaker of the National Assembly.

Apart from commercial banks, which have offered their own proposal to lower rates, Treasury Cabinet Secretary Henry Rotich and CBK Governor Patrick Njoroge have warned against fixing interest rates.

The President, however, is under pressure from Opposition leaders Raila Odinga (Cord), Musalia Mudavadi (Amani National Congress) and a host of MPs and senators to sign the Bill into law.

(READ: Interest cap to squeeze small lenders harder, says agency)

On Friday, Senate Finance Committee chairman Billow Kerrow turned up the pressure by warning that should the President decline to assent to the Bill, he would have given banks a chance to influence lawmakers to shoot it down. He said a law to rein in banks was badly needed.

“In the long run, the economy and the country will benefit. Over 76 countries cap interest rates globally. It’s the right thing to do,” Mr Kerrow said.

Among the expected measures will be the establishment of the Office of the Banking Ombudsman whose role will be to preside over borrowers’ complaints against banks. “The ombudsman will have the same powers as a judge,” a Treasury source said.

Consumer protection laws will be proposed to impose severe penalties on banks that charge high interest rates. The amendments to the consumer protection law will also protect small borrowers who get loans from platforms such as M-Pesa, saccos, and micro-finance institutions.

“These three categories are not covered by the current amendments,” Treasury sources said.

LEND TO SMALL SCALE TRADERS

Even though banks have set aside Sh30 billion to lend to small-scale traders and workers at lower rates, President Kenyatta will propose the figure be increased to Sh200 billion.

Parliament can either accept the President’s proposals or override the veto with a two-thirds majority.

“He will propose that banks set aside a sum of money, certainly not less than 10 per cent of their 2-trillion-shilling loan book for small and medium enterprises, with clear criteria on who qualifies for the loans,” Treasury sources said. He will, still propose reforms to the central collateral registry for title deeds and the credit reference information so that banks do not misuse them to punish borrowers.

The President will further propose that the Financial Services Authority Bill, which will soon be tabled before the Cabinet, is reviewed to include clauses such as arbitration, administrative calculations and regulation of general market behaviour by banks.

Further, President Kenyatta will propose introduction of a clause which will compel the Treasury to allow the public to bid for Treasury Bills and Bonds which have long been an exclusive cash cow for commercial banks where they have been making billions of shillings in profit.

“This could be done via M-Pesa, and will make it possible for people with as little as Sh1,000 to invest in government debt instruments,” sources said.

The law gives the President, who received the Bill on Monday 14 days to either assent to the proposed law or return it to Parliament with a memorandum.

Parliament can either accept the President’s proposals or override the veto with a two-thirds majority.