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CBK governor grilled over lifting of loan caps

James Momanyi @jamomanyi

The Central Bank of Kenya (CBK) Governor Patrick Njoroge yesterday shrugged off allegations by MPs that he has colluded with banks and global financial institutions like the International Monetary Fund and World Bank to have the law of interest rates caps removed.

National Assembly Committee on Finance and Trade members put the governor to task to explain why the law has not enabled a large population of ‘small’ borrowers access cheap credit one year and half since it was passed.

The MPs also accused the governor of remaining silent even when banks alledgedly colluded to slow down lending to small borrowers and instead embarked in a campaign to discredit the law on interest caps.

“When the law was passed, banks threatened the government and promised that they will make sure that it doesn’t work. As a cartel, they said they will not lend to SMEs,” said Jude Jomo, mover Banking Act (Amendment) Bill, 2016, which was enacted in September the same year.

“The question is, why is CBK appearing to be supporting the commercial banks and even came up with a report to show the negative impact of the interest caps at a time when banks were running a campaign in the media to discredit the interest rate cap law?” he asked.

Alego Usonga MP Samuel Atandi also accused the governor of bidding for International Monetary Fund and World Bank who have criticised the caps and urged the government to amend the law.

But the governor denied that there is a conspiracy between the regulator and banks to undermine the law and said CBK advice rooting for amendment of the law is based on factual data that has shown the negative impact on the economy since the law was enacted.

“The accusation that there is a go slow by the banks who are colluding to deny credit to SMEs is a serious charge and as a regulator we cannot condone that.

CBK cannot be on the same side with commercial banks to do something that can injure common mwanachi. That way we will be giving out our mandate as supervisor,” Dr Njoroge said.

He said that unlike in the past, the current push for amendment is informed by a study that shows loan caps have constrained CBK’s ability to adjust monetary policy signals in response to economic developments.

The governor said that in case the law is amended, CBK will put in place measures to ensure that banks do not abuse self-regulation order like in the past.

“We have already established a cost of credit website, which is meant to increase transparency in the pricing of banking products.

We will also ensure banks are adopting the credit reference bureaus (CRBs) scores and analytics in credit extension by hamonising the parameters for credit scoring by CRBs.”

CBK will also push banks to adopt customer centric business models and enhance transparency and information disclosures.

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