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Will push to scrap loan caps sail through Parliament?

Zachary Ochuodho @zachuodho

Treasury is keen on pushing for scrapping of the interest rates cap, which was enacted in 2016, despite stiff opposition from the National Assembly.

Last week, the National Assembly Finance Committee rejected the Central Bank of Kenya (CBK) proposal to scrap the capping rate saying the regulator had failed to stem huge government appetite for domestic borrowing.

According to Treasury Cabinet secretary Henry Rotich, Treasury plans to introduce a bill that will deal with the root cause of the high-interest rates in Kenya during the 2018/19 financial budget that begins on July 1.

Rotich argues that a host of issues contributes to the high-interest rates in Kenya and dealing with the matter requires addressing the root cause of the problem once and for all.

Speaking last week during a press briefing after meeting with AfDB East Africa region chief executive Caleb Nyamajeje, Rotich said the yet-to-be introduced Bill will deal with the ‘conduct of financial markets in the country’.

“The new Credit Management Bill’ intends to deal with critical issues that suppress credit growth to the private sector, especially for households and small enterprises,” said Rotich.

Rotich said when the interest rates capping was enacted in 2016, it did not attack the underlying causes and that was why even after being enacted, Small and Medium Enterprises (SMEs), which proponents of the law thought would access cheap loans, ended up not benefiting at all.

The CS urged MPs not to take a hard line stance on the removal of the interest rate capping saying once the root cause is attacked, SMEs and individuals deemed as risky will be able to get loans. “We are planning to engage the public on the interest rate issue. Credit management is a big issue in Kenya.

We intend to present our proposal to Parliament to see how we can deal with the issue,” said Rotich. The CS, however, assured that before the Bill is taken to the National Assembly for debate, the government will have to engage the public and also present its proposal to the House to see how they deal with the issue.

Kenya capped commercial lending rates at four percentage points above the central bank’s benchmark rate, which now stands at 9.5 per cent, in an attempt to limit the cost of borrowing for businesses and individuals.

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