Rate law encompasses Mshwari, saccos
The law capping interest rates was passed and ululations from long-suffering wananchi rent the air. “Finally financial freedom from the big sharks is here”, they screamed. Whether his assent of the Banking Amendment Bill 2015 was a political move or not is an argument for another day.
The six-page Bill was meant to amend section 31 and section 33A of the Banking Act and the Bill which is now law has raised eyebrows in the legal fraternity on interpretation and application arising from sections of the new law. Section 31A which amended section 31 makes it compulsory for bank and financial institutions to disclose to their customers all the charges and terms to the borrower. This is a good move and it makes it easier for the borrower to plan and anticipate the related costs of borrowing while applying for a loan.
Most importantly we need to understand the terms used in the new law, namely ‘bank’ and ‘financial institution’. The Banking Act defines ‘bank’ as a company which carries on, or proposes to carry on, banking business in Kenya. So what is banking business? The same Act defines ‘banking business’ as the acceptance from members of the public of money on deposit repayable on demand, or at the expiry of a fixed period or after notice; on current account and payment on and acceptance of cheques or by employing of such money held on deposit or on current account, or any part of the money, by lending, investment or in any other manner for the account and at the risk of the person so employing the money.
On the other hand the Banking Act defines a financial institution as a company, other than a bank, which carries on, or proposes to carry on, financial business while financial business is the accepting from members of the public of money on deposit repayable on demand and employing of money held on deposit by lending, investment or in any other manner at the risk of the person so employing the money. In my opinion, the definitions in the new law tends to regulate Saccos, microfinance institutions, insurance companies and M-Shwari.
The new law criminalizes the contravention of the provision of Section 33 B which states that a bank or a financial institution shall set the maximum interest rate chargeable for credit facility in Kenya at no more than four percentage points, the base rate set by the CBK or set the minimum interest rate granted on a deposit held in Kenya at not less than seven per cent, the base rate set by the CBK.
Ken Ashimosi is a head of commercial practice at Ashitiva&Co Advocates