There has been a lot of debate about the impact of the amendments of the Banking Act that were spearheaded by Hon Jude Njomo, Kiambu town MP in 2016. After being passed by parliament and incorporated into the Banking Act, the amendments set a floor deposit rate of four percent and a lending cap of four percent over the Central Bank Rate (CBR). Nevertheless, the 2018 Finance Bill removed the floor deposit rate despite leaving the lending cap intact.
In a move by Moses Kuria, Gatundu South MP to amend the Banking Act further in order to introduce an interest rates risk pricing negotiation window that has already been communicated to the speaker of the National Assembly, J.B Muturi, he has noted that the current legislation has led to unintended consequences as much as it has checked on excessive and punitive lending rates by commercial banks, protected depositors and discouraged usury. “First, the banks have withdrawn lending to small and medium enterprises (SMEs) and unsecured individual borrowers because it has removed the leg room for pricing risks,” Mr. Kuria says in the letter to the speaker. “ Secondly, the cap as it exists puts the interest rate in the same level as the government paper – treasury bills and treasury bonds – and commercial banks are therefore finding it more prudent to invest in these risk free instruments, instead of lending to the private sector; especially SMEs,” he adds.
If the amendment proposed by Mr. Kuria goes through, many customers who have been denied loans by commercial banks because of being perceived to be high risk will breathe a huge sigh of relief. Top among these customers will be micro, small and medium enterprises.