It will be great relief among micro, small and medium enterprises (MSMEs) which have been starved of credit if law on interest rate capping is repealed as proposed by National Treasury Cabinet secretary Henry Rotich.
Rotich said the repeal of section 33(b) of the Banking Amendment Act (2016) will ensure that small-scale traders get credit, which has not been forthcoming.
The proposal was also a major win for commercial banks, most of which have been denying MSMEs loans, saying providing them with credit as provided in the law was risky.
“Given the challenges that MSMEs are facing in accessing credit from the banking sector and conscious of the need to spur business activities, I am in this year’s Finance Bill proposing a repeal of section 33(b) of the Banking (Amendment) Act, 2016. I am convinced this will unlock credit to the private sector and in particular to the MSMEs,” Rotich said.
He added that three years have passed since the law was enacted and it has had the opposite effect, starving MSMEs of credit with loan books of small banks becoming smaller.
Section 33(b) (1) of the Banking (Amendment) Act sets the maximum interest rate chargeable for a credit facility provided by commercial banks at no more than four percentage point of the base lending rate set and published by the Central Bank.