More still needs to be done to spur access to credit

The interest rate cap has been an ongoing debate. Some quarters, especially the banking sector, the Treasury, IMF and the pundit economists termed its introduction as a populist approach, whilst financial consumers lauded the government, claiming that “Banks should finally be tamed!” Any of these concerns were never far from the truth.

Different quarters either supported or opposed the introduction of the rate cap.

The Consumer Federation of Kenya wasn’t left behind during this time, and neither was the High Court, as it was tasked to determine whether the rate cap as introduced in the Banking Act deprived Central Bank of its exclusive constitutional mandate under Article 231 (2) to formulate and implement monetary policies.

The court rendered itself as follows: That whereas the setting of the CBK rates is undoubtedly a function of the CBK in formulation of monetary policies in Kenya, it is not clear as to whether the introduction of the rate cap within a legal framework, regulating the manner in which financial institutions charge interest for facilities is a function of monetary policy, to this extent the National Assembly enjoyed presumption of constitutionality and the rate cap did not offend CBK’s mandate.

Anyway, the reasons as to why the President declined to assent the Finance Bill into law can be summarised as follows: The consequential impact being that the interest rate cap had crippled economic growth and reduced credit accessibility to the private sectors, particularly the Micro, Small and Medium Enterprises (MSMEs).

But curiously enough, the government’s local or domestic borrowing was never mentioned, which in my opinion has been the greatest crippler in our economy, since the money channeled for the private sectors ended up being given to the government thus starving the private sector as well as households.

Notwithstanding the above, one of the interesting reasons as to why the Finance Bill was sent back to Parliament was the emergence of shylocks and other unregulated lenders in the credit market; lenders who have taken the opportunity of the capped interests to offer an alternative credit to Micro, Small and Medium Enterprises (MSMEs) at exorbitant rates.

The proliferation of unregulated credit lenders has caused more harm than good to the economy.

The only way to tame the unregulated lenders is by expanding the banks' credit access, making it easily accessible and cheaper to the low-income earners, as well as SME’s and reducing all sorts of bureaucratic processes.

Arguably, some would suggest that banks haven’t been transparent, and often taken advantage of their customers by including "hidden charges" that are not easily discernible to the ordinary mwananchi.

Shylocks and other digital lenders have taken advantage of this and consequently invaded the credit market. Transparency works best in any industry and it goes a long way in cementing consumer confidence.