Editorials

Tie caps review to CBK rules

cbk

The Central Bank of Kenya. FILE PHOTO | NMG

In publishing the rules to guide bank operations ahead of the review of the law that caps interest rates, the central bank is certainly on the right path.

It is, for instance, not unreasonable for banks to set aside a substantial percentage of their lending — 20 per cent as proposed — for lending to small business.

This is the sector that has suffered most under the regulated interest rate regime, as banks shied away from lending to them that they carry high risk profiles.

But this is notwithstanding, the fact that MSMEs are key drivers of growth locally -- and thus the net effect to the economy has appeared to negate what the rate caps were meant to achieve.

Yet, the CBK's move is not without reservations.

First, the architect of the rate capping law, Kiambu Town MP Jude Njomo, has expressed doubts on the likely effectiveness of the draft measures to rein in banks.

They have not been transparent on showing the effective total cost of a loan.

As such, the proposed measures may not work without a law.

It is our considered view that the CBK's guidelines should be allowed to play out and their effect felt — before any law review on capping the interest rates is done.