The issue of interest rates has refused to go away even after caps were imposed on commercial banks in late 2016. That is especially because of the unintended consequences—credit growth has decelerated and particularly hit the small firms and consumers hard.
One major reason is because banks have found it more reasonable to lend the Treasury and avoid the small and medium enterprises, inherently deemed riskier, as well as consumers like plague. Inescapably, the economic growth has suffered.
Now MP Moses Kuria wants to raise the margin on top of the central bank rate (currently nine percent) from four to six to unlock bank credit.
In terms of business, the proposal makes a lot of sense. That will mean a maximum bank charge of 15 percent, which is in fact much lower than what macro-financiers, unregulated credit-only firms, not to mention the many lending apps, are charging.
However, the amendments if enacted, need to be followed up with concrete rules defining risk. This is because banks could take advantage of the changes to a apply blanket increase in rates. The Central Bank of Kenya should ensure this does not happen. Meanwhile, we see the move as important in reversing the funding crisis spawned by the rate controls.
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