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Banks have finally been brought to heel

Friday September 16 2016

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Many Kenyans have been walking with smiles on their faces since the President assented to the Banking (Amendment) Bill. In layman’s language, this Bill will do three major things for the public.

One, it has introduced an element of consumer protection in law that has been long overdue in this country. It is now illegal for banks and financial institutions to lend any money without reference to this law.

It has been proven, economically and mathematically, that banks will make profits on loans at the current regulatory rate of 14.5 per cent, yet they charge up to 11 per cent more than this rate. This greedy difference is what this law seeks to regulate.

Two, the law will force a highly exploitative financial market to rethink its monster business models, in which the biggest single source of income is interest rates.

This sector has been given many lives by the government, but has refused to reform. Whereas the banking sector claims the law may cause financial exclusion, it deliberately fails to mention that a sector they claim to include – small and medium enterprises – is the most exploited by the so called "variable" financial products.

Money reserved for the Women Enterprise Fund and the Youth Fund was meant to anchor micro, small and medium enterprises.


Three, the government is admitting, in not so many words, that the Central Bank of Kenya and the National Treasury have refused, failed or been unable to cushion the public from blatant financial exploitation by banks, which have continued to make abnormal profits since the sector was liberalised in the 90s.

Most of the banks that have either collapsed or been put under receivership have been riddled with banking scams and insider loans, which they have been unable to bear.

No bank has collapsed due to lending to the so-called "financially marginalised" sector. This in itself points to governance challenges that their regulator, the Central Bank, should have a grip on.

There is a section of the general public that seems to be under the impression that the President signed this Bill because he wants our votes next year. I do not for one second think the President is not looking for votes; there is no other way for him to stay in office.

But in a country where we give votes to an individual because he is from "my community", we might as well give him votes for something useful, like consumer protection.

In any case the National Assembly can pass laws without presidential assent, by a two-thirds majority vote. So it would have taken just a little bit longer, but the Bill would have become law through the parliamentary route.

A sardonic part of the public is also arguing that Members of Parliament passed this law because they were thinking about their own loans, which they need to clear before 2017. The key work here is “thinking”. Since when was that a bad thing?


The public should follow suit and let every individual think about him or herself, and how this reform can benefit their personal finances or their contribution to our economy.

The Kenya Bankers Association has attempted to explain its opposition to the Bill by saying it will take us back in democracy. So, who do they propose will protect the public from exploitative democracy? I don’t get this part

The first responsibility of the government in a democracy is the public, not any industry. The beauty of this law is that it cannot be changed without public participation. The sector needs to realise, in that same vein of democracy, that the days of closed-door negotiations between the sector, the Central Bank and the Treasury are long gone.

Those sustainable ways of reducing interest rates the banks referred to are unknown to the public.

It is also interesting to note that after the law was passed, the banking sector took a good beating at the Securities Exchange, with mainly foreign outflows in the stock market. Does that mean foreign investors in the financial markets were riding on the SME sector, given that the bank that lost the most is also reputed to support this sector predominantly?

All the players in the financial sector take the public for granted; none of them had any research or data that supports any of the claims they used to oppose the Bill, including inefficiencies in the credit market and credit rationing.

They just assume that because they said so, the public believe it to be true.

Twitter: @muthonithangwa