Competition has been a very effective tool in making life more affordable for consumers in Kenya and other parts of the world. This has been very evident in the telecommunication industry where the nation witnessed a plunge in calling rates as a result of competition.
The same has been evident in the mobile phone handset market and other electronics. The prices of these items have been known to be on a downward scale because of the variety available on the market. The rate of price reduction in electronics however cannot match that witnessed in call rate charges. It has been a significant one though.
Kenyans in their quest to develop have been greatly hampered by the high interest charged on loans by the lenders. Banks at the same time have been seen to compete for customers to increase their deposits and sustain their operations. This however has not been seen as benefiting the consumer who is charged interest on loans of up to 25%. This idea has resulted to parliament proposing an amendment to the Financial Bill to have interest rates capped, a move that has strongly been opposed by the banks.
In this operating environment, is there a situation where we will see a ‘natural’ fall in interest rates on loans and an increase in deposit rates as a result of competition? Could we see banks ‘hawking’ loans at rates of , say, 17%-19% and double digit interest on interest earning deposits? Maybe treasury’s proposal to have every Kenyan to hold a bank account will drive the competition up and effectively have these rates favour the consumer.
See related story on interest rate capping.