Tanzania keeps close eye on Kenya's interest rates cap impact

Monday August 29 2016

Bank of Tanzania governor Prof Benno Ndulu. PHOTO | FILE

Bank of Tanzania governor Prof Benno Ndulu. PHOTO | FILE 

By The Citizen

The Bank of Tanzania (BoT) says it is closely watching the outcome of the decision by Kenya to introduce caps on loan interest rates before considering a move back home.

BoT governor Benno Ndulu told The Citizen over the weekend that it would be too early to comment because of possible adverse outcomes to the low-income earners.

Last Wednesday Kenya became the only country in the region to introduce a law that caps bank interest rates at 4 per cent above the Central Bank of Kenya benchmark rate, currently standing at 10.5 per cent.

The law will regulate applicable rates to bank loans and deposits thereby capping the interest that the financial institutions can charge on loans and deposits.

Prof Ndulu told The Citizen that Tanzania would have to wait to see how the Kenyan experience turns out.

“We tried controlling credit before and it did not work for the poor,” Prof Ndulu said.

In opposing the Bill the lenders lobby, the Kenya Bankers Association had also cited lack of lessons from other countries on the issue as the problem.

Prof Ndulu said he was of the view that the Kenyan law would hurt the very people the policy intended to help.

Tanzania has had its fair share of debates and complaints from customers over the tendency of commercial banks to charge hefty interest on loans people take and minimal interest in money customers deposit with the financial institutions.

The complaints have been centred around the fact that the difference between the loan and deposit rates is rather high and a virtual rip-off to hapless borrowers.