Kiambu MP Jude Njomo, the architect of the rate capping law, said the legislation has not worked because the CBK has failed to enforce it as required.
Removing the caps on interest rates is one of the promises Kenya recently made to the IMF as it negotiated renewal of the Sh150 billion ($1.5 billion) standby credit facility that expired last month.
MPs accused Dr Njoroge of working in sync with the lenders to amend the law under the pretext that it had stifled lending to private sector and SMEs.
Parliament yesterday gave the clearest indication that repealing the one-year-old interest rate capping law will not be a walk in the park, putting Kenya’s fiscal and monetary policy makers on a collision course with the country’s development partners.
Members of Parliament told Central Bank of Kenya (CBK) governor Patrick Njoroge that they will not allow commercial banks to work with the CBK and the International Monetary Fund (IMF) to have the law capping interest rates repealed.
Kiambu MP Jude Njomo, the architect of the rate capping law, said the legislation has not worked because the CBK has failed to enforce it as required.
“We know banks are not lending to SME because that is what they promised to do when we were enacting the law. They are now working as cartels on that promise as they did with high interest rates,” Mr Njomo said.
“According to our Constitution, Central Bank Governor and Treasury have no power or mandate to amend laws. That is the prerogative of parliamentarians and therefore, the rest who are speaking (on the repeal), are just making noises that will change nothing. After asking MPs their opinions about the push to have the law repealed, their response has been that they are reacting to their electorate, who say they don’t trust the banks.”
Removing the caps on interest rates is one of the promises Kenya recently made to the IMF as it negotiated renewal of the Sh150 billion ($1.5 billion) standby credit facility that expired last month.
Treasury mandarins promised the IMF a repeal of the interest rates capping law within the six-month window of the facilities extension.
Availability of credit facility is also tied to the Treasury’s fulfilment of the promise it made to cut back on the fiscal deficit through a raft of budget consolidation measures, including cutbacks in public spending.
'Working with lenders'
The National Assembly’s Finance, Planning and Trade committee accused Dr Njoroge of working in sync with the lenders to amend the law under the pretext that it had stifled lending to private sector and small and medium enterprises (SMEs).
The MPs also challenged him to explain the rationale behind the claim by banks that rates capping had affected their business when the sector remains generally sound, with capital adequacy and liquidity ratios above the statutory minimum.
“You are on record as saying that rate cap law will be repealed because it has stifled lending to SME and hurt the economy. There is a narrative doing rounds that CBK, banks, IMF and WB are trying to paint the picture that the interest rate caps is the main reason commercial banks are unable to extend credit to Wanjiku yet you have said that liquidity in the banking sector is currently at 43.7 per cent. How do you reconcile those two positions?” Waihenya Ndirangu, the committee vice-chairperson, asked Dr Njoroge.
But Dr Njoroge denied the existence of an “unholy” alliance between the CBK, commercial banks, the IMF and the World Bank, saying available data shows that the rates law had affected lending to SMEs and stifled the economy.
“The issue of conspiracy is a serious charge. There was narrative of banks colluding in the past to increase interest rates. That is not something we can condone.
“The CBK can’t be on the same side with banks because we are the regulator. If we do that we will be going against our mandate of supervising commercial banks,” Dr Njoroge said.
Mr Ndirangu claimed that banks had ganged up to deny SMEs and the private sector credit while blaming it on the interest rate capping law.
Alego Usonga MP Samuel Atandi said Dr Njoroge was aware that the IMF had put repealing the rate capping law as a condition for extension of Sh150 billion cautionary credit, making the CBK an accomplice in ongoing campaign to amend the law in order to please the IMF.
But Dr Njoroge said the CBK has been reforming the banking sector since 2016 through pricing of banking products, strengthening of credit information sharing and enhancing consumer protection.
“The removal of the interest caps is critical to development of a market-led financial sector. However, the banking sector must fully demonstrate that it is responsible and disciplined,” Dr Njoroge said.
