President Uhuru Kenyatta has signed the Banking (Amendment) Bill, 2015 that was passed by the National Assembly on July 28, 2016.
The Bill intends to regulate interest rates that are applicable to banks’ loans and deposits, capping the interest rates that banks can charge on loans and must pay on deposits.
In a statement to newsrooms on Wednesday, President Kenyatta said he consulted widely after receiving the Bill and found out that Kenyans are disappointed and frustrated with the lack of sensitivity by the financial sector, particularly banks.
He said he shared the concerns that were centred around the cost of credit and the applicable interest rates on their hard–earned deposits.
This is the third time that the National Assembly is attempting to reduce interest rates to affordable levels.
In the previous two instances, dialogue and promises of change prevailed and banks avoided the introduction of these caps.
In those instances, banks failed to live up to their promises and interest rates have continued to increase along with the spreads between the deposit and lending rates.
Kenyatta said despite having one of the most efficient and effective financial markets, Kenya has one of the highest returns-on-equity for banks in the African continent, adding that there is need to do more to reduce the cost of credit and ensure that the benefits of the vibrant financial sector are also felt by customers.
“Upon weighing carefully all these considerations, on balance, I have assented to the Bill as presented to me. We will implement the new law, noting the difficulties that it would present, which include credit becoming unavailable to some consumers and the possible emergence of unregulated informal and exploitative lending mechanisms,” read the statement in part.
The president said the government will closely monitor the difficulties as they relate to the most vulnerable segments of the population.
“Whilst doing so, my government will also accelerate other reform measures necessary to reduce the cost of credit and thereby create the opportunities that will move our economy to greater prosperity. We recognise that banks have done much in the last decade in terms of innovation and promoting financial inclusion, and look to their doing more in that direction,” said Kenyatta.
The president also reiterated his commitment to free market policies in driving sustainable economic growth.