Era of expensive loans looms

The Treasury has made another attempt to repeal the law that stopped banks from overcharging customers through excessive interest rates in what could herald a return to the era of expensive loans.

Through an amendment to the Finance Bill, 2019, Treasury Cabinet Secretary Henry Rotich seeks to repeal section 33B of the Banking Act, which would have the effect of scrapping the law.

Should Parliament approve it, banks will have had the final laugh after two previous attempts to lift the law through Parliament and the courts were defeated.

CREDIT GROWTH

Mr Rotich argues that his attempts last year and this year to repeal the law were motivated by the need to enhance access to credit and minimise the adverse impact of the interest rate-capping on credit growth while strengthening financial access and monetary policy effectiveness.

“In addition, I highlighted a number of reforms that we were putting in place to optimise lending to the private sector while at the same time encouraging innovation in the financial sector in Kenya,” Mr Rotich said in his budget speech in Parliament.

He argued that already the Central Bank is dealing with consumer protection issues in the banking sector.

“Given the challenges that MSMEs (micro, small and medium-size enterprises) are facing in accessing credit from the banking sector and conscious of the need to spur business activities, I am in this year’s Finance Bill proposing a repeal of section 33B of the Banking (Amendment) Act, 2016. I am convinced this will unlock credit to the private sector and in particular to the MSMEs,” he said.

But, Kiambu Town MP Jude Njomo, who sponsored the bill, said the fresh attempt to repeal the law would not see the light of day.

INTEREST RATES

He argued that nothing has changed to convince lawmakers that banks will behave differently when allowed to determine the rates on their own.

“This is not the first time Rotich has tried to do this. But, he must remember that he is an employee of the people and not the banks. We will not allow the proposal to pass through Parliament,” Mr Njomo told the Saturday Nation.

He said banks had decided to arm-twist the government by refusing to lend to SMEs so that they have their way.

Before the law that capped interest rates was adopted, banks were charging interest rates of as high as 24 per cent, raking in billions of shillings in profits every year but making loans very expensive.

“What has really changed to convince us that banks will act differently? We will defeat it in Parliament,” he said.

AMENDMENT

He said he has already drafted an amendment to the law as directed by the courts that he will present in the House soon.

“The amendment has gone through several motions and it shall soon be tabled in Parliament,” he added.

Mr Rotich made a similar attempt in last year’s budget. The second attempt was made in court after a Mr Boniface Oduor filed a case in a commercial court, which found the law unconstitutional.

But the court suspended enforcement of the ruling for 12 months to give lawmakers time to amend the banking law to be in line with the Constitution.