Pricing of loans by banks must be made transparent
That borrowers have long suffered the high cost of credit in Kenya cannot be denied. And so when the law capping interest rates came into effect on September 14 last year, there was hope that it would cushion consumers against some overzealous lenders who took advantage of the free interest rate setting regime to make super profits.
Indications are, however, that this law could soon be repealed on grounds that it has had a negative impact on the economy.
Patrick Njoroge, the Central Bank governor, said on Wednesday that preliminary findings of a joint study with the Treasury on the Banking (Amendment) Act, 2016, which caps loan charges at four percentage points above the Central Bank Rate (CBR) and requires lenders to pay interest of at least 70 per cent on long-term deposits had shown there is need to review the law.
While we respect the CBK governor’s assertions, we must urge him and his counterparts at the Treasury to make the full report public in the spirit of transparency. Credit is a sensitive issue and the public must stay involved in all decisions affecting them.
Most importantly, any quest to repeal this law must be strictly driven by the welfare of the consumers and not partisan interests.
Dr Njoroge and the Treasury mandarins must act in the knowledge that millions of Kenyans do not agree that reverting to the old interest rate regime may be the immediate solution to the problem, especially given that nothing has been done to contain exploitative commercial banks.
The pricing of loans by banks must be made more transparent and impartial to avoid denying individual borrowers access to credit.
Even with the law capping interest rates, the cost of credit has remained a contentious issue as many lenders focused on trading with the government and big corporations thus locking out millions of small businesses and individual borrowers from the market.
It therefore boils down to discipline and honesty in the credit market.
It might also help to have a hard look at the government’s borrowing in the domestic market, which is the primary determinant of the cost of loans.