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Economy

Treasury plans consumer Bill to replace rate caps

Treasury principal secretary Kamau Thugge. FILE PHOTO | NMG
Treasury principal secretary Kamau Thugge. FILE PHOTO | NMG 

The Treasury is preparing a consumer protection law to replace the legal caps on commercial lending rates, blamed by the International Monetary Fund for sluggish credit growth to the private sector.

Principal secretary Kamau Thugge said the programme, which will include a bill to safeguard borrowers against expensive bank loans, will be presented to the National Assembly before end of the current financial year in June.

The government in September 2016 capped commercial lending rates at four percentage points above the central bank’s benchmark rate, which stands at 10 per cent, and put a minimum deposit interest rate of 70 per cent of the benchmark.

It argued that lenders had failed to lower costs of credit, despite enjoying some of the highest rates of return on equity in the continent.

Now, the Treasury says it is perfect time to revisit a cap on lending rates with the chair of the parliament’s  budget committee favouring a review.

“The issues of consumer protection will be addressed in some sort of a law to address the concerns that were there before- that the SMEs are not getting loans at reasonable rates and the issues in the financial system will also be addressed in a fundamental way to bring the rates down in a sustainable way,” Dr Thugge said in Nairobi on Thursday.

“So it is a whole package of those measures (to bring down loan charges) and we are going to involve all the key stakeholders … (including) discussing with the banks.”
He did not give details of the how the consumer law will curb a sharp rise in lending rates.

President Uhuru Kenyatta signed into law the Banking (Amendment) Act 2016 at a time when the average interest rate stood above 18 per cent, a level seen as unaffordable for the dominant SMEs.

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