MPs vow to quash Uhuru veto on interest rates Bill

Members of Parliament yesterday rejected bank executives’ counter-proposals to borrowers meant to stop a law capping interest rates and vowed to marshal the required two thirds majority needed to quash a presidential veto.

Led by Jude Njomo, the sponsor of the Bill that seeks to cap interest on loans at not more than four per cent of the Central Bank of Kenya (CBK) base rate, the MPs dismissed banking industry proposals to lower the current lending rates by 100 basis points as “a mere public relations gimmick”.

Mr Njomo, the Kiambu Town MP, rallied five colleagues to dismiss the proposals by Kenya Bankers Association (KBA) to among others set aside Sh30 billion for lending to small and micro-enterprises (SMEs).

The MPs said the belated KBA proposals were meant to arm-twist President Uhuru Kenyatta into rejecting the Banking (Amendment) Bill, 2015 and hoodwink Kenyans into believing that capping interest rates will hurt the economy.

Mr Njomo, Kimani Ichung’wa (Kikuyu), Kareke Mbiuki (Maara), Abdikadir Aden (Balambala) and Victor Munyaka (Machakos) vowed to marshal a two-thirds majority (233 MPs) to overturn presidential veto should Mr Kenyatta send the Bill back to Parliament.

“What the banks are doing amounts to arm-twisting the President to rejecting the Bill. How sure are we that the Memorandum of Understanding signed between KBA and the CBK Governor Patrick Njoroge will stand if not legislated by Parliament?” Mr Njomo asked.

Bank executives had on Wednesday reacted to Mr Njomo’s Bill by proposing a raft of measures aimed at easing public pressure on Mr Kenyatta not to sign the Bill into law.

READ: Banks dangle Sh30bn SME loans to avert interest rates cap

Commercial banks announced the creation of a Sh30 billion fund for lending to SME at “friendly interest rates” on Wednesday. Each bank is to contribute to the fund based on their current lending to SMEs.

The banks also promised to lower the SMEs lending rates to a maximum of 14.5 per cent in the next one year and to ensure that Sh10 billion out of the Sh30 billion fund is set aside for women and youth.

Mr Njomo’s Bill also seeks to set the floor for deposit rates at 70 per cent of CBR, a move that would significantly narrow the lenders’ spreads.

If Mr Kenyatta assents to the Bill, as passed by the National Assembly, bank lending rates would be capped at 14.5 per cent based on the current CBR of 10.5 per cent.

Mr Njomo and his counterparts accused banks of perfecting deception whenever the issue of regulating lending rates is raised and termed the bank executives’ latest offers as “a knee jerk reaction meant to persuade the President not to sign the Bill into law”.

“Nearly 20 years ago, when the Donde Bill was introduced, bankers promised to lower the rates but this has not happened to date. They are again offering the same solutions they offered two decades ago,” Mr Njomo said.
Without a legal backing, the MPs said, the KBA proposals as contained in their MoU with the CBK “have no legs to stand on”.

Mr Njomo added that despite the CBK promising two years ago that the establishment of KBRR would bring interest rates down nothing has so far happened in the pricing of credit.

“Dr Njoroge must demand that the MoU be backed by legislation to win his approval. We have seen many MoUs signed and trashed,” Mr Njomo said, even as he revealed that the Bill has not been delivered to the President for assent.

“As of Tuesday, the Bill was still within the offices of the Clerk of the National Assembly and the Attorney-General asked the House to speed up its delivery to the President,” he said.

Mr Ichung’wa accused KBA of acting as a cartel for commercial banks who levy borrowers interest rates of up to 24 per cent while paying depositors a paltry return of between one and two per cent.

“For banks to set aside Sh30 billion to be lent to SMEs at friendly rates, they are admitting that they have been lending to borrowers at exorbitant rates. KBA is trying to protect very inefficient cartels in the banking sector that have produced a few billionaires and millions suffering citizens,” Mr Ichung’wa said.

The legislator termed the one per cent of loan portfolio the banks promised to lend to SMEs a drop in the ocean.

“We will demand nothing short of 20 per cent to SMEs, who are the drivers of our economy. We can only start negotiating with banks if they offer a minimum of Sh200 billion to SMEs,” the Kikuyu MP said, adding that proactive legislation that empowers women and youth must be in place if the caps on interest rates are to be removed.

Mr Aden, the Balambala MP, said the proposed law was in line with banking sector regulation in many countries around the world and told the bank executives to stop scare mongering about its possible negative impacts on the economy.

“In other economies, the cost of loans is capped at not more than four per cent of the base rate but we are being charged up to 24 per cent. It is ironical for banks to argue that they will lend Sh30 billion to SMEs at friendly rates. This confirms they having charging unreasonable interest,” he said, adding that the high interest rates were to blame for the inability of many Kenyans to invest or own homes.

“I urge the President to swiftly sign the Bill into law in the interest of Kenyans. To Dr Njoroge, I must say that the banks are up to nothing but to deceive you as they have done to your predecessors.”

Mr Mbiuki said the Bill was long overdue and pleaded with Mr Kenyatta to append his signature as part of the fulfilment of the Jubilee pre-election manifesto that pledged to lower interest rates.