The Finance Bill 2011/2012 was passed in parliament on Thursday after long debates and a troubled life on the shelves of the house. The bill was passed without the amendments proposed to it of having interest rates on loans capped and deposits interest made at a base rate defined by the Central Bank of Kenya.

What would this mean for current borrowers and people who have deposited money in interest earning accounts?

Experts say that should the amendments have been passed, most banks would charge interest at the highest end of 22%. The Central Bank Rate is at 18% and the regulator allows commercial banks to charge up to 4 percentage points more. This means that borrowers who had loans at the rates of 18% and 19% would be forced to pay at the higher rate of 22% which most banks would like;y adopt for safety.

In the same wake,  loanees who were servicing loans at the high rates of 25% would benefit a lot by repaying them at the new rate of 22%.

On the other hand the base rate for deposit interest was proposed to be at 12.6%. This would greatly benefit people who had deposited with banks offering them interest at single digit rates. However, other people who were enjoying interest at rates as high as 18% would lose out by great margins if banks decided to work with the standard proposed rates.

The move to cap interest was aimed at saving the huge percentage of borrowers who are charged by commercial banks an average interest of 24% on the loans. However, experts argue that capping interest rates would in the long run affect the economy as conditions for taking loans would tougher hence discourage entrepreneurs from committing themselves to borrowing. The effect would be the banks and the businesses.