President Kenyatta declined to assent to the Finance Bill 2019 and asked MPs to scrap a cap on commercial lending that was imposed in 2016.
Consequently, Uhuru has sent the Bill back to the National Assembly after agreeing with the Treasury and Central Bank of Kenya (CBK) that the interest rate cap is hurting the economy.
The two bodies argue that the law has negatively affected private-sector loan growth as lenders have avoided giving loans to customers deemed as risky, including SMEs.
“The President has not assented to the Bill and has returned it to Parliament for review. The issue is the repeal of interest capping law,” National Assembly Majority Leader Aden Duale told Business Daily.
“The memorandum will be communicated to the House tomorrow afternoon (Thursday) by the Speaker.”
Multinational agencies such as the International Monetary Fund (IMF) have also been pressuring the government to scrap or modify the interest restriction law.
If MPs heed to Kenyatta’s advice and repeal the law, banks will have the freedom to price their loans depending on risk assessment. This means borrowers will be left at the mercy of commercial lenders as far as interest on loans is concerned.
Before the introduction of the capping law in 2016, banks exposed borrowers to high lending rates of up to 25 percent.
The cap put lending rates at four percentage points above Central Bank of Kenya’s benchmark, which currently stands at nine percent, putting the maximum borrowing rate at 13 percent.