Raila urges Uhuru to honour Jubilee pledge on cheap loans

President Kenyatta on Sunday came under pressure from the opposition and trade unions to sign into law a Bill seeking to regulate interest rates.

Cord leader Raila Odinga welcomed the Bill and urged President Kenyatta to sign it, as did the Central Organisation of Trade Unions (Cotu).

The Bill provides that banks cap their interest on loans at no more than four per cent of Central Bank of Kenya base rates.

The President has promised to act in the public interest, pointing out that low interest rates was one of the Jubilee Coalition pledges to the electorate.

However, bankers waded into the debate urging the President to reject the proposed law and let market forces determine interest rates.

In a statement issued from London, Mr Odinga welcomed the Banking Act (Amendment) Bill 2015 by Kiambu Town MP Jude Njomo, saying high interest rates had curtailed growth of local businesses and led to exit of investors to neighbouring countries that have more favourable lending rates.

“High commercial lending rates, often around 18 per cent or more, have stifled businesses and particularly killed upstarts such as youth projects,” said Mr Odinga.

“High interest rates, like the cost of power, has forced some investors to relocate to neighbouring countries with better rates.”

Mr Odinga accused the government of orchestrating the rise in the rates by borrowing from the local market.

He asked the President to be considerate of the small-scale borrowers, whom he said would benefit from the Bill.

“This Bill is now in the hands of President Uhuru Kenyatta,” said Mr Odinga.

“We expect the President to act in the interest of suffering Kenyans and sign this Bill into law without further excuses and unnecessary delays.

“The Jubilee government’s borrowing from the local market is higher than that of any regime in the past 10 years. This has pushed individuals and corporations out of competition for money from banks, which has, in turn, slowed economic activity.”

BAD IDEA
President Kenyatta, through his spokesman Manoah Esipisu, said he was determined to bring down interest on bank loans.

“The President remains committed to finding a solution to the high interest rates in the country — indeed, it was among his campaign promises, and he is committed to fulfilling that pledge to Kenyans. He thanks Parliament for sharing that commitment,” said Mr Esipisu.

He said the President would, however, hold “extensive” consultations with stakeholders in the banking sector before making a decision to sign the Bill or return it to the lawmakers.

“It is yet to be formally transmitted to the President, but when he finally gets it, he will spend time consulting extensively on the provisions before applying his mind and making his decision,” said Mr Esipisu.

“Ultimately, the President believes that all stakeholders will find a sustainable solution.”

The Bill got unanimous support in the National Assembly and has been taken to the President for assent.

The President can sign or reject the Bill. In case of rejection, he would do so with a memorandum indicating the reasons for refusal.

Normally, the memorandums suggest clauses in the Bill to be removed or amended. If the Bill is thus returned to the Assembly, it will require 233 MPs to change it.

Perhaps in an attempt to lobby the President to reject the Bill, banks have offered to set aside Sh2 trillion for lending to small and medium enterprises at concessionary rates.

Kenya Bankers Association said cutting rates will make borrowing difficult for customers with high-risk profiles.

“If the interest rate is capped, then borrowers who have a higher risk profile will be pushed out from banks to unregulated lenders such as shylocks,” said KBA chief executive Habil Olaka.

ALTERNATIVE ROUTES
CBK governors have in the past opposed attempts at regulating interest rates by law, saying it should be left to the market.

Cotu urged the President to assent to the Bill since banks had declined to lower lending rates.

“The Central Bank Governor is on record as admitting that lending rates are too high and that banks should be persuaded to lower their rates,” said Cotu’s first deputy secretary-general, Mr Ernest Nadome.

He said products such as M-Shwari and chamas (self-help groups) are preferred to bank loans as they have fewer conditions and lower interest rates.

Mr Nadome expressed a concern that many Kenyans often resort to borrowing from shylocks due to the tough conditions imposed on them by banks.

He said the President was the only one standing in the way to a better financial future for the country.

Reports by Jeremiah Kiplangat, John Njagi and Agewa Wainaina