Mr Stephen Mutoro (right), secretary general, Consumers Federation of Kenya. The federation says it will move to the Supreme Court seeking a reversal of a decision that removed controls on interest rates under a legal amendment in 2000.
The Consumer Federation of Kenya will move to the Supreme Court seeking a reversal of a decision that removed controls on interest rates under a legal amendment in 2000.
The controls had been imposed through the Central Bank of Kenya (Amendment) Bill 2000, popularly known as the Donde Act after former Gem MP Joe Donde who successfully moved the proposals in Parliament.
The law had imposed a spread of four percentage points as a ceiling between lending and the 91-day Treasury bill rates.
Thus with the 91 T-bill rate at about nine per cent as is the case currently, the lending rate would not legally exceed 13 per cent to any borrower.
On the other hand, the law specified that the deposit rate was also supposed to be no less than four percentage points below the prevailing T-bill rate.
At the current T-bill rate, the deposit rate would be at least five per cent. The clause was meant to stop profiteering by banks at the expense of firms and individuals who were then in financial distress and were being declared bankrupt.
Banks perennially made profits even when the rest of economy was performing badly.
In 2010, average return for listed firms was about 30 per cent, but banks increased their profitability by about 50 per cent in the same year.
“We are going to move to the Supreme Court to bring back the Donde Act which was defeated at the Court of Appeal years back,” said Stephen Mutoro, the secretary general of Cofek, during a press conference at Panafrique Hotel Wednesday.
Mr Mutoro said that consumers cannot stand a situation where banks are making huge profits at the expense of the rest of the economy and the consumers continue to face escalating prices on all fronts.
The Court of Appeal decision in 2001 led banking industry to ignore the curbs on interest rates put by the Donde Act. A misunderstanding arose after the then President Moi signed into law the bill with a retrospective commencement date of January 1, 2001, while the signed law itself was dated August 6, 2001 which caused banks to go to court for interpretation.
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