MPs uphold rate cap law, scrap interest on savings

The law capping interest rate charged on loans is likely to be retained in its current form, after all.

This is after the National Assembly’s Finance Committee dropped its earlier decision to amend the Finance Bill, 2018 to require banks to calculate interest based on the now-defunct Kenya Banks Reference Rates (KBRR).

Instead, the committee yesterday amended the Finance Bill again, reverting to using the Central Bank Rate (CBR) as the base rate for charging loans, rejecting Treasury’s proposal for the complete removal of interest rate cap.

However, the committee proposed the removal of the cap on interest rate banks pay depositors, a situation that might see savers’ returns squeezed as banks seek to compensate for their lost earnings on loans.  

“Having discussed for a long time, we have proposed that we retain the status quo but we remove the lower cap so that the banks and the customer are left to discuss about interest rate to be given on the savings,” committee chairman Joseph Limo told MPs when he tabled the report in the House.

Should the amendment sail through, banks will be required to charge interest on loans at no more than four percentage points above the CBR. The CBR is currently at nine per cent.

Discarded rate

“A bank or a financial institution shall set the maximum interest rate chargeable for a credit facility in Kenya at no more than four per cent, the Central Bank Rate set and published by the Central Bank,” reads part of the amended Bill, currently at the Committee Stage. Limo said they discarded KBRR, as it had not even been effected.

“At a later stage, there is a proposal to introduce KBRR in place of CBR, but we are moving a further amendment to delete that and return it to CBR.”