The architect of the rate capping law is fighting to retain the Act after sponsoring an amendment to the Finance Bill, 2018 to reverse a proposal that seeks to abolish loan interest limit.
Kiambu MP Jude Njomo has filed a notice seeking to delete clause 58 of the Bill to retain the interest capping at the maximum rate of not more than four percent, the base rate published by the Central Bank of Kenya (CBK) which has lowered the cost of borrowing for many Kenyans and promoted economic growth.
“A clause in the Bill, which comes for debate this week seeks to reintroduce the high interest rates that consumers in Kenya were faced with including rates up to 30 per cent prior to the amendment of the Banking Act which introduced the famous section 33B simply known as the capping section,” Mr Njomo said while justifying his intention to retain the caps.
Mr Njomo has a daunting task to convince majority of MPs to back his quest against the repealing of the one-year-old interest rate capping law.
The Central Bank of Kenya (CBK) and the International Monetary Fund (IMF) have been pushing the Treasury to have the law capping interest rates repealed.
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.
Mr Njomo reckons the high interest rates stall economic growth as they increase cost of borrowing and in turn cost of doing business.
“If we remove it, what will happen to those who have already borrowed? What will happen to those who were intending to borrow because the rates are now attractive? We know that most banks of late are deliberately either slow or declining to give loans to individuals, the informal sector (jua kali) and some small and medium enterprises (SMEs),” Mr Njomo said in his amendments sent to the Clerk of the National Assembly.
He argued the deliberate decision by banks not to lend to individuals is intended to threaten or punish the economy so that the government can dance to the tune of the banks and remove the rate caps clause.
“Banks have been saying that they have suffered since the rolling out of the rates cap law but, the quarterly and annual financial reports published by banks in the last 18 months, none of them made losses. All of them made profits, mostly attributable to their loan books. The profits are actually increasing especially in the half year reports for 2018,” Mr Njomo said.
He cited the Sh12.1 billion that the Kenya Commercial Bank (KCB) #ticker:KCB announced recently which is 18 per cent increase from last year.
He said Equity Sh11 billion up from Sh9.4 billion last year while Cooperative bank made Sh9.98 billion representing an increment of 7.6 per cent.
“They just want to make more and more by arm-twisting us to repeal the rate caps clause. But what will those who we represent make? The single most reason why we are being asked to repeal this good clause by some section of the government is because of the IMF. Really? We want to go back to the days when the Breton Woods institutions would dictate anything, including our consumption patterns? It no longer about our people, but about the IMF,” Mr Njomo said.
The second term MP said he will give a critique of the IMF shortly, which reminds Kenyans of the dark days of the Structural Adjustment Programmes (SAPs) which they forced in many nondeveloped and developing countries in Africa in the 1980s.
“They were designed by the IMF and the World Bank and imposed as a condition for loans,” he said.