Most major banks have now adjusted to the new loan interest rates following President Uhuru Kenyatta signing into law the Banking Amendment Bill, 2015.
Key features of the Bill are:
- A requirement for disclosure of all information on loans. “A bank of financial institution shall before granting a loan to a borrower disclose all the charges and terms related to the loan,” says the Bill
- An amendment giving the Central Bank of Kenya (CBK) power to set a ceiling to the interest charged by banks. “The maximum interest rate chargeable for a credit facility in Kenya (shall be) no more than four per cent the base rate set and published by the Central Bank of Kenya,” and
- A requirement that the minimum interest rate granted on a deposit held in interest earning in Kenya to at least seven per cent the base rate set and published by the Central Bank of Kenya.
These amendments have had Kenyans from all walks of life running around with joy while banks have had to reluctantly comply.
The banks have for many years reaped huge profits from their customers by charging interests as high as 30 per cent for loans while paying nothing on money deposited even in accounts that are supposed to earn interest. Many times, they have charged Kenyans to maintain an accounts even when it is a savings account.
This ridiculous manner of doing business has led to frequent attempts by Kenyans to control bank rates but their efforts have not been successful.
The first serious attempt by parliament was in 2001. The effort was however foiled by heavy lobbying from the banks.
Another failed attempt was made in 2011.
Bankers’ argument then was the regulation would choke the economy and obliterate gains made in the industry.
Kenya joins some 20 other African countries have put a ceiling to bank interest rates on loans.
Even though businesses should be left free to operate, there is a need for business people to become responsible. For banks in Kenya, this is just such a moment.