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Stakeholders oppose repeal of capping law

Ruaka in the olden days was a little-known village. Residents and farm- hands working in rolling, large-scale coffee plantations and dairy cattle farms surrounded by small-scale farms gathered here to shop, drink or just while away the time.

Travellers headed towards the Rift Valley on the longer route, Limuru Road often made stopovers to fuel or eat nyama choma or cold drinks before the long climb up to the Kikuyu escarpment. Today, the landscape of this former village has become a concrete jungle as the main shopping centre continues to transform into a major town. Last weekend, yet another major residential investment was unveiled.

“Today Ruaka is a much sought-after neighbourhood. The present shopping centre is destined to become a town soon,” said a director at Reside Property Real Estate Developers, Chris Mwangi Ndirangu. “The decision by the government to build a dual carriageway from the Gitaru junction of the Southern bypass near Kikuyu to Ndenderu at a cost of Sh12 billion has been a major boost,” Ndirangu added.

He was speaking during the groundbreaking ceremony for the construction of [email protected], a modern apartments block at Ruaka suburb, off Limuru Road. Located just 15 km from Nairobi’s CBD, the project offers 42, two-bedroomed tenant purchase units at Sh5.95 million in Ruaka —a destination of the growing middle class and young families. Real estate stakeholders gathered at the function revisited the debate on capping law on interest rates that has elicited different views.

They dismissed calls by the banking sector led by the Kenya Bankers Association for the Banking (Amendment) Act 2015, to be repealed on grounds that it had enabled ordinary Kenyans an opportunity to own homes.

“This grandstanding between financial institutions and the State does not augur well for the real estate sector. A solution needs to be found urgently,” said the chief executive officer of Reside Property Real Estate Developer, Geoffrey Wandeto, who officiated the groundbreaking.

The crisis regarding the capping law has taken yet another shape after the World Bank during the week called for the reversal of the law. It suggested that more policy reforms that will improve access to credit and financial inclusion be undertaken, a similar position Cytonn proposed earlier.

Despite the positive intention behind the Banking (Amendment) Act, 201, it has not achieved its intended goal, which was to improve lending by making credit affordable. But so far, the cap has curtailed lending. For instance, private sector credit growth has declined from a high of 25.8 per cent as at June 2014 to a low of 1.4 per cent as at July 2017 and came in at two per cent in October 2017.

In Quarter Three 2017, total amounts lent by commercial banks grew by 6.3 per cent compared to five-year average of 14.6 per cent. Fitch, a global rating agency, has previously termed the law as unusual in that it is a blanket rate cap on all loans unlike in other markets where rate caps typically apply only to specific segments, such as retail lending for consumer protection purposes.

This push comes after the Central Bank of Kenya (CBK) expressed interest to have this law reversed to revert to a regime where interest rates are freely determined, but in a disciplined commercial banking environment. CBK Governor Patrick Njoroge recently disclosed that a preliminary finding of a joint study with the Treasury on the impact of the rates capping on growth of credit had confirmed a negative impact.

However, Wandeto says the World Bank, KBA, Fitch and the CBK positions are informed by the interests of financial institutions frustrating the purpose of the law by making it hard for ordinary people to access mortgage.

“Current interest rates remain favourable. But the lending regime has unfortunately become more stringent and many would be homeowners are being locked out,” regretted Wandeto.

According to a World Bank report, there are 76 nations in the world that have experimented with interest rate caps. Based on reviews of their experience, the bank concludes that rate caps are blunt instruments and supports alternative interventions. In many cases, there is evidence of negative effects of controlled rates.

Kikuyu-based E-Link Agencies manager, Duncan Ngumi Mwangi and a development legal consultant, Philomena Mwavizo said repeal of the law will be a big blow to State’s efforts to encourage more Kenyans to own a home. “Mortgage access in a country facing an annual shortage of more than 150,000 houses a year is a big relief for ordinary Kenyans with the law in place,” Ngumi said.

Another guest, Gabriel Were, used to pay Sh7,000 per month in rent for a single bedroom unit near Kikuyu town. Last year, the family bought a house. “I will pay a monthly rate of Sh18,000 to the bank for the 15 years. I raise some amount and the rest is from my wife. This is after a Kenyan indigenous bank made it possible. The amount demanded as interest encouraged me to take the mortgage,” Were said.

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