The Banking (Amendment) Bill, 2015 seeks to regulate interest rates at no more than four per cent of the base rate set and published by the central bank.
If enacted into law, banks’ lending rates would be capped at 15 per cent based on the current benchmark rate of 11 per cent.
Currently, those borrowing personal unsecured loans are paying up to 25 per cent.
Parliament has revived its bid to cap bank interest rates in a fresh attempt to arrest the runaway cost of borrowing.
MPs are expected to debate the Banking (Amendment) Bill, 2015, that seeks to regulate interest rates at no more than four per cent of the base rate set and published by the Central Bank of Kenya (CBK).
Mr Jude Njomo (Kiambu), the sponsor of the Bill is also proposing to peg the minimum interest granted on a deposit held in interest earning account to at least 70 per cent of the base rate set and published by CBK.
The Bill was formally introduced to the National Assembly after being read a first time on December 2, 2016 and committed to the Finance, Planning and Trade committee for consideration.
If enacted into law, banks’ lending rates would be capped at 15 per cent based on the current benchmark rate of 11 per cent. Currently, those borrowing personal unsecured loans are paying up to 25 per cent.
A similar bid flopped in August last year after the Budget and Appropriations committee put the brakes on an amendment by Gem MP Jakoyo Midiwo who wanted cap bank interest rates through amendments to the Finance Bill, 2015.
The committee then chaired by Mbeere South MP Mutava Musyimi argued that Midiwo’s proposals went against Article 114 of the Constitution.
Mr Musyimi argued that 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.
“A person shall not enter into an agreement or arrangement to borrow or lend directly or indirectly at an interest rate in excess of that prescribed by law,” Mr Njomo’s Bill states.
Mr Njomo is seeking to amend section 33 of the banking Act by introducing a new section 33(B) which provides for interest ceilings and criminalises the act of providing interest rates higher than those set in law.
“A bank or financial institution which contravene the provision of the law commits an offence and shall, on conviction be liable to a fine of not less than Sh1 million or imprisonment for a term not less than one year or to both,” the Bill states.
The Finance committee, chaired by Ainamoi MP Benjamin Lang’at is expected to table its report to inform MPs debate. MPs plan to have more sessions by approving Thursday morning sittings to clear key pending Bills.
“It is the desire of Kenyans to have affordable interest rates. Banks have formed cartels to ensure high interest rates. The KBRR which is mandated to check interest rates appears to be a toothless bulldog,” Njomo told the Business Daily on Friday.
He asked Kenyans and MPs to own the fresh push to regulate interest rates saying he will lobby colleagues to ensure the drive succeeds “this time around.”
“This is the right time that members of the public must give their views on what they think about interest rates on loans. We expect resistances from banking industry,” the Kiambu MP said.
The new Bill, published on November 12, 2015 overtook a similar proposal by Sirisia MP John Waluke.
Mr Waluke wanted to cap bank interest rates to five percentage points above the base rate set by the industry regulator and restricts the minimum interest earning payable for deposits to 70 per cent of the CBK bare rate.
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