Rate law en­com­passes Msh­wari, sac­cos

The Star (Kenya) - - News - KEN ASHI­MOSI

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

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