The push by members of parliament to have interest rates capped could hurt borrowers in the long run. Kenya Bankers Association chairman Habil Olaka says that the move will result to banks devising methods to have secure lending only which will lock out many loan seekers from accessing credit.
A section of MPs led by Gem PM Jakoyo Midiwo announced last month that they will be pushing for a fresh bid to have ending rates capped after the first attempt was thwarted in Parliament in March.
“Should capping be done banks would then only advance credit to borrowers who only meet the credit profile within the limit that has been legislated.” Olaka said. “That means that banks will only lend to borrowers who meet a credit profile of up to 22%”. He added. Olaka was speaking at the Kenya Bankers Association Golden Jubilee celebration.
Speaking at the same event, finance minister Njeru Githae echoed Olaka’s sentiments saying capping of interest rates would lock out the masses from accessing loans. Githae said the move by MPs will ‘work against the vulnerable sectors they want to protect’ as banks would only lend to more secure sectors on the market.
The banking industry has in the recent past faced criticism over high interest rates which shot to an average of 25% in November 2011 up from 15% a year earlier. Central Bank of Kenya‘s Monetary Policy Committee reduced the base lending rate in July to 16.5% down from 18% with most banks expected to lower their lending rates as a result. The MPC is expected to lower the base rate further in September as a result of inflation rates going down to 7.74% in July 2012 from 19% in October 2011.