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MPs to defy Uhuru over loan rate caps

Friday October 18 2019

ODM Chairman and National Assembly Minority

ODM Chairman and National Assembly Minority Leader John Mbadi addressed the press at Parliament buildings on October 8, 2019 concerning the Kibra by-elections. He said the plan to remove interest rate limit is unwise. PHOTO | JEFF ANGOTE | NATION MEDIA GROUP 

IBRAHIM ORUKO
By IBRAHIM ORUKO
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OTIATO GUGUYU
By OTIATO GUGUYU
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Members of the National Assembly have vowed to reject President Uhuru Kenyatta’s memorandum that explains his refusal to assent to the Finance Bill, 2019.

The MPs on Thursday vowed to marshal the requisite numbers to overturn the memorandum, saying the reasons advanced by the President are unconvincing.

In the memorandum, which was communicated to the House by Speaker Justin Muturi, President Kenyatta said the decision to cap interest rates has caused unintended effects that are significant and damaging to the economy, particularly the micro, small and medium-sized enterprises (MSMEs).

MPs rejected the explanation, with some telling the Nation the reason was more of personal interest than the good of the economy.

They said if the cap is removed, borrowers will be left at the mercy of lenders while banks will have the freedom to price their loans depending on their risk assessment.

POOR MANAGEMENT

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House rules provide that two-thirds of members are required to overturn the President’s memorandum, which is 233.

While the Minority Leader John Mbadi said it could be a tall order for the National Assembly to garner the requisite numbers to shoot down the memorandum, he disagreed with the reasons advanced by the President.

“I don’t agree with the reasons the President has advanced in his rejection of the bill. It is upon us to ensure that we get the numbers to overturn his reservations,” Mr Mbadi told the Nation.

He said businesses and individuals are not getting money because the government is over-borrowing from financial institutions. “The government must stop its appetite for loans, especially from local lenders,” he said.

Tongaren MP Eseli Simiyu said he will mobilise his colleagues to shoot down the memorandum. “It is the government that is competing with ordinary citizens in borrowing from local lenders. On the other hand, banks are finding Treasury Bills a better option than ordinary Kenyans. I will mobilise Kenyans to reject the memorandum to show the President that Parliament has power,” Mr Eseli said.

LOW CREDIT

Belgut MP Nelson Koech vowed to ensure that MPs attend the House to dismiss the memorandum. “MPs will speak as true representatives of the people because what the President is proposing will hurt ordinary Kenyans. Let all MPs come so we can shoot it down,” he said.

President Kenyatta wants the House to remove the cap on interest rates because it has reduced credit to the private sector, loan books of banks and that shylocks and other unregulated lenders have taken advantage to lend at high rates.

The government and the banking sector have in the last three years initiated programmes and measures to deal with the concerns of affordability and availability of credit from banks and at the same time strengthened the vulnerable sectors, especially MSMEs, women and youth.

SMEs IN PAIN

The President said commercial banks have taken advantage of interest rate control and adjusted their lending business models towards large corporates, away from small-scale borrowers.

“As a result, credit to segments such as MSMEs that are perceived risky declined after imposition of the controls,” the President said, adding that recent studies indicate a decline of credit to MSMEs by 10 per cent in the first year following the introduction of rate capping.

A study by the Central Bank of Kenya showed that rationing out MSMEs from the credit market by commercial banks is estimated to have lowered the country's economic growth by 0.4 percentage points in 2017 and by a further 0.2 percentage points in 2018.

Studies show that the lending activity of smaller banks reduced with outstanding stock of credit declining by about five per cent in the 12 months ending September 2017.

However, experts argue that a successful removal of rate cap is set to bring to an end three years of cheap credit for the government in the local market that saw Treasury ramp up domestic debt from Sh1.8 trillion in June 2016 to Sh2.7 trillion last June.