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MP pushes for revision of interest rate cap law

Gatundu South Member of Parliament Moses Kuria has revisited the interest rate capping introduced in the Banking (amendment) Act 2016, saying it needs to be amended to enable small and medium enterprises (SMEs) and unsecured individual borrowers access loans.

In a letter written to the Speaker of National Assembly, Justin Muturi, the MP wants him to facilitate amendment of the Act to provide room for the banks to price risks of the loan appropriately.

According to Kuria, the new amendment needs to maintain a lending cap at four per cent above Central Bank Rate (CBR) for low-risk clients but introduce a risk negotiation window of up to six per cent above the lending cap and for SMEs and unsecured individual customers to negotiate pricing based on their risk profile and on a willing buyer-willing seller basis.

He believes the amendment will free credit to the SMEs, discourage government borrowing from the domestic market, drive private sector credit growth and spur fresh economic activity and growth.

Kuria argues that while the objective of the amendments introduced in Act in 2016 managed to check on excessive and punitive lending rates by banks, discouraged usury and protected depositors, it also led to unintended consequences.

He says the law has forced banks to withdraw lending to SMEs and unsecured individual borrowers. Kuria says as a result of the lending cap of four per cent above CBR, banks are now unable to price their loans effectively – making it difficult for the private sector to access credit.