Pric­ing of loans by banks must be made trans­par­ent

Business Daily (Kenya) - - EDITORIAL & OPINION -

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.

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