President Uhuru Kenyatta has signed into law a Bill capping bank interest rates at 4 per cent above the Central Bank Benchmark Rate, currently at 10.5 per cent.
The law will regulate applicable rates to bank loans and deposits thereby capping the interest that banks can charge on loans and deposits, President Kenyatta said in a statement to newsrooms on Wednesday.
The President said he had consulted widely and had learnt that Kenyans were disappointed and frustrated by the insensitivity of the banks.
“These frustrations are centred around the cost of credit and the applicable interest rates on their hard–earned deposits. I share these concerns,” said the President.
He said banks had previously dodged and blocked the introduction of the law, with the rates continuing to shoot-up.
Mr Kenyatta’s action comes even as banks made concerted efforts to prevail upon him not to sign the Bill, arguing that they were already lowering the rates.
“As we await the decision on the matter, the banking industry, through the Kenya Bankers Association, welcomes the opportunity to reengage with the Parliamentary Committee on Finance, Planning and Trade, towards responding to the concerns of the public whilst addressing the issue of interest rates in a sustainable way," the bankers said recently.
“We therefore believe that the referral of this Bill back to Parliament offers the stakeholders an opportunity to reach a long-lasting solution that supports Kenyans and builds our economy,” they added.
And shortly after the President announced his decision on Wednesday, the bankers said they were still opposed to the law but added that they will comply.
In a statement, the bankers said they are committed to bringing down loan interest rates and thus welcome the President’s decision.
“We, however, do not feel that an arbitrary rate cap is in the best interests of the majority of people and businesses that this law seeks to support.
"The reality is that there is little evidence from other countries that such interventions have helped the majority of citizens, and in a number of countries such laws have been reversed to promote financial inclusion,” they said.
In addition, they said they “remain committed to addressing the fundamental issues that drive up the cost of credit.”