CBK's confusion that may jeopardize cheap loans in Kenya

Central Bank of Kenya has completely failed to clear the air on three main issues that may jeopardize the implementation the new Banking Amendment Act, 2016. These confusions brought by CBK are as follows;

1.  The first confusion is whether the banks should use the Central Banks Rate (BBR) or the Kenya Banks’ Reference Rate (KBRR) in the implementation of the Act. The question has been whether the base rate to be used by banks is the CBR or the Kenya Banks’ Reference Rate (KBRR) or there is another new rate to be introduced by the regulator? The truth of the law on this confusion is that the interest rates capping estimates should be derived from the KBRR rate of 8.9 per cent plus four per cent which equals 12.9 per cent and not the 14.5 per cent. The base rate should be the KBRR and not CBR as used today!

2.   The second confusion is whether the Banking Amendment Act, 2016 will affect existing loans/old loans. Question: why is CBK slow in interpreting this law! Is it a matter of sabotage or what? CBK should give clear guideline with immediate effect before 14th of September 2016 when the law becomes effective. Apparently, a decision by some lenders to pass the benefit of the new law to current borrowers seems to have set precedence in the industry.

3.   The third confusion by CBK is their inability to determine whether micro-finance banks are also to be regulated by the law given that the amendment was made to the Banking Act and not the Micro-finance Act. The truth of the matter is that the exclusion of micro-finance banks from the regulation is likely to entice banks to open subsidiary micro lenders so as to continue offering loans in an unregulated regime and CBK must be able to interpret this with speed!

The confusions herewith must be ironed out soonest to allow Kenyans benefit from the new Bank Amendment Act of 2016. Their failure to interpret the Act has left stakeholders to interpret the intention of the law by themselves and this is dangerous

Njenga Solomon, Ph.D

DEAN- School of Governance, Peace and Security Studies

Senior Lecturer, Department of Peace and Conflict

Africa Nazarene University