Eyes on Uhuru as MPs approve law on rate cap

Members of Parliament have approved a bill that entrenches bank interest rate caps after they voted to block the National Treasury from returning the country to a free market regime.

President Uhuru Kenyatta is expected to sign into law the Finance Bill, 2019 by close of business on Monday in line with statutory deadlines.

The National Assembly approved the Finance Bill, 2019 through its Third Reading after throwing out and amendment by the National Treasury that sought to repeal the Banking (Amendment Act), 2016.

In 2016, the MPs imposed caps on commercial lending rates at four percentage points above the benchmark central bank rate to cushion Kenyans from high loan costs.

The law has been blamed for stifling growth of small banks and hurting private sector lending while making it easier for Government to borrow from the domestic market.

In its budget proposals to Parliament in June, the Treasury sought to repeal the rate cap, arguing that it has constricted private-sector credit growth as banks shunned lending to customers deemed risky, including small and medium-sized businesses.

A similar attempt by the Treasury to remove the cap through the Finance Bill, 2017, was rejected by the lawmakers.

The Finance and National Planning Committee maintained the cap in its scrutiny of the Finance Bill, 2019 but has changed its language “to make it clearer” in line with a High Court Order that gave MPs a one-year window to correct inconsistencies.

The High Court had ruled in March that the section of the law capping rates was unconstitutional and gave Parliament a year to amend it.

On Wednesday evening, the Finance committee lobbied MPs to pass a rewritten version of Section 33 of the Banking Act to make clear that the cap applies to annual interest rates on all commercial loans.

“I consulted with the chairperson of Finance and National Planning on the amendment to interest rate caps and we agreed that the Finance Bill, 2019 is the shortest route available to align the Banking (Amendment) Act, 2016 with the ruling of the High Court,” Jude Njomo, the architect of the rate capping law told the Business Daily in a telephone interview.

Mr Njomo said with the adoption of the rewritten version of Section 33 of the Banking Act, the fresh Bill he sponsored to align rate cap clauses with the ruling of the court will not proceed to third reading.

“The House approved my Banking (Amendment) Bill, 2019 through the third reading but it has now been overtaken by the Finance Bill. As I said, I am happy that Parliament has complied with the court judgment and we have been able to beat the March, 2020 deadline to amend the law,” Mr Njomo said.

Through the now collapsed Banking (Amendment) Bill, 2019, Mr Njomo had sought to substitute the word “credit facility” with “loan” and define ‘rate’ as the one captured under section 64 of the CBK Act.

The High Court in March ruled that the original law was vague and that terms like ‘credit facility’ and the ‘Central Bank Rate’ (CBR) are open to misinterpretations.