Fresh attempts to cap bank interest rates by law flopped on a technicality Thursday after the Budget and Appropriations Committee said the proposed amendments to the Finance Bill went against Article 114 of the Constitution.
Mbeere South MP Mutava Musyimi, who chairs the committee, asked the Speaker to decline an amendment to the Central Bank of Kenya Act to cap rates filed by Gem MP Jakoyo Midiwo.
He said any changes to a money Bill must be approved by the Budget committee after taking the views of Treasury, the CBK and other stakeholders in line with Article 114 of the Constitution.
Mr Midiwo wanted banks or a financial institution which has issued a loan or a monetary advance to charge an interest rate of not more than three per cent of the indicative rate published by the Monetary Policy Committee.
He also wanted banks or financial institutions to pay depositors not less than 70 per cent of the base rate published by CBK.
“The committee was not seized of the proposal by Mr Midiwo in time. This amendment would require recommendations of the Treasury and Central Bank of Kenya,” Musyimi said.
He said the committee is in receipt of a legislative proposal filed by Sirisia MP John Waluke seeking to cap interest rates to five per cent above the Central Bank Rate.
Mr Waluke has sponsored the Central Bank of Kenya (Amendment) Bill 2015, which seeks Section 36 of the CBK Act to compel banks and microfinance lenders to cap borrowing rates at five percentage points above the central bank lending rate.
This means that banks’ lending rates will be capped at 16 per cent based on the current benchmark rate of 11 per cent should the Bill be approved into law.
The average lending rate was 15.5 per cent in March, down from 16.9 per cent in July last year, but those borrowing personal unsecured loans are paying up to 22 per cent at some banks.
“The Midiwo amendment will not be considered at the committee,” ruled Speaker Justin Muturi, but was quick to add that it had not been rejected.
Mr Midiwo said although the law allows MPs to make amendments to the Finance Bill, his amendments do not intend to increase additional expenditure on public funds.
“I have been on issue of interest rates since 2005. If it’s the view of the Budget committee that we need to engage, I am willing and ready. Something should be done about interest rates charged on the people of Kenya. My amendment doesn’t occasion any additional expenditure on public money but gives Kenyans money they are being robbed by banks,” he said.
Mr Waluke and Midiwo will be expected to work jointly in publishing the Bill whose intention is to make the central bank rate the benchmark for the interest rates in the financial sector.
The Central Bank Rate (CBR) is supposed to influence lending rates but has been largely ignored in the past. This prompted the introduction of a new formula in July last year for banks to use in pricing loans.