Duale, Cofek reject push to change interest rate law - Daily Nation

Duale, Cofek oppose push to change interest rate law

Sunday April 15 2018

interest rate cap

National Assembly Majority Leader Aden Duale addresses journalists at Parliament on March 22, 2018. He has opposed calls for review of the interest rate capping law. PHOTO | JEFF ANGOTE | NATION MEDIA GROUP 

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The push to review interest rate capping law has been opposed by the National Assembly Majority Leader Aden Duale and the Consumer Federation of Kenya, noting that any move to give the banks the freewill will expose Kenyans.

The two maintained that where governance and regulatory discipline has dipped as is the case with Kenya’s banking and financial sector, price controls are inevitable.

“It’s the business of any responsible legislature in the world to make laws that are beneficial to the society. We made this law for the good of Kenyans,” Mr Duale said.


Cofek secretary-general Stephen Mutoro noted that instead of the Central Bank governor, Dr Patrick Njoroge, offering factual insights and demonstrating the “purported failure” of the law, he has taken to a “non-persuasive blanket condemnation”.

“That he is an embodiment of skewed regulatory failure is a matter within the public domain,” Mr Mutoro said.

When President Uhuru Kenyatta signed the 2015 Banking (Amendment) Bill in 2016, he observed that while it was a painful decision, he had to accept realities of public outcry.

“He pledged that the effect of the legislation would be monitored over time.”

The comments by Mr Duale and Cofek come as the members of the Finance and National Planning committee of the National Assembly told Mr Njoroge that it is his duty to ensure the law is fully implemented as opposed to pushing for changes.

Consequently, the MPs warned that reviewing the caps will expose Kenyans and small lenders to manipulation from commercial banks even as they vowed not succumb to pressure from Breton Woods institutions.

The International Monetary Fund (IMF) and World Bank are pushing for changes to the Banking Act to remove the caps as a condition for Kenya accessing their credit facilities.

But the move has been condemned by the committee led by its chairman, Mr Joseph Limo (Kipkelion East), as “going beyond the limit”.

The two international organisations want the law amended to give the governor of CBK, the industry regulator, powers to oversee the commercial banks in advancing credit to customers.


On September 2016, the National Assembly amended the Banking Act by introducing a cap on the lending rates at four per cent above the CBK rate (CBR) and a floor on the deposit rates at 70 per cent of the CBR.

The changes were sponsored by Kiambu MP Jude Njomo, who last week accused the banks of acting like cartels to frustrate the law.

“When the interest rates went down, the banks conspired to triple the charges and transfer the same to customers,” Mr Njomo claimed.

But when he appeared before the Finance committee on Thursday, Dr Njoroge said that the law is unproductive as it has seen commercial banks collude to deny Kenyans and Small and Medium Enterprise (SMES) access to credit.

According to the CBK’s preliminary analysis, the Gross Domestic Product growth in 2017 contributed by the SMES, declined by 2.2 per cent on account of slowdown in credit from commercial banks.

“CBK’s ability to adjust monetary policy signals in response to economic developments is constrained, producing perverse outcomes witnessed by declining credit to private sector,” Dr Njoroge told the MPs.

However, MPs Samuel Atandi (Alego Usonga), Henry Waihenya (Roysambu) and Mr Limo put Dr Njoroge on the spot over his commitment to the implementation of the law.

“The feeling of the members is that you were to create a good environment for the interest rates to work. Are you telling us that capping is one of the conditions by the IMF and World Bank for aid?” Mr Limo sought to know.

Mr Atandi weighed in: “If you are pushing for the amendment to this law, aren’t you an impediment to its implementation?”