Thursday, July 28, 2016
By Adelaide Changole
Kenyan members of parliament passed a bill limiting how much interest commercial banks can charge on loans, the last step before a final vote that will take place on Thursday intended to force down credit costs in East Africa’s biggest economy.
The proposed amendment pegs commercial rates at 4 percentage points above the benchmark Central Bank Rate and sets interest granted on deposits at a minimum 70 percent of the CBR. Kenya’s financial authorities have repeatedly asked lenders to reduce their loan charges to stimulate demand for credit in the nation.
“The members voted overwhelmingly for it,” Member of Parliament Jude Njomo, who sponsored the amendment, said in the capital, Nairobi, referring to the third reading. If passed at a vote on Thursday,
the bill will still require presidential assent.
Commercial lenders extended loans at a weighted average rate of 18.25 percent in May, according to the most recent statistics from the central bank, whose CBR was kept at 10.5 percent at a Monetary Policy Committee meeting on Monday. The regulator reduced the measure by a percentage point at its previous gathering in May.
The central bank Governor Patrick Njoroge has opposed the lawmakers’ move, saying it would harm the $61 billion economy.
“It is going to create distortion in the market,” another MP, Moses Kuria, said. “I know it is very popular with the business community because they have suffered under interest rates.”