World Economy

IMF Pressures Kenya to Scrap Interest Rate Capping Law

President Uhuru Kenyatta signed the interest rate bill  in Nairobi on August 24, 2016.President Uhuru Kenyatta signed the interest rate bill  in Nairobi on August 24, 2016.

The International Monetary Fund is piling pressure on Kenya to remove interest rate controls maintaining they are harming the economy.

The board, which completed a review of Kenya’s performance, said the interest rates cap has complicated monetary policy and adversely affected credit access for small and micro enterprises, AllAfrica reported.

It said this threatens to reverse Kenya’s gains in financial inclusion.   

Private sector credit growth fell to 4.3% in December 2016 compared to more than 17% a year earlier, Central Bank of Kenya data show.

“Preliminary information suggests that these controls have had unintended negative consequences on the availability of financing for small and medium-sized enterprises, with the risk of reversing the remarkable increase in financial inclusion observed in recent years,” the multilateral lender said.

“In addition, interest rate controls are undermining the effectiveness of monetary policy aimed at ensuring price stability and supporting sustainable economic growth.”

But critics have accused banks of engaging in “blackmail and economic sabotage to force amendments.”

“There is a concerted effort by banks, which have formed cartels to keep off credit from the public thus blackmailing parliament into changing a law that protects Wanjiku,” said the  architect of the law Kiambu Town MP Jude Njomo in March.

The Consumers Federation of Kenya secretary-general Stephen Mutoro has also hit out at the International Monetary Fund for its sustained push against the rate caps claiming that failed fund policies are to blame for the sad state of Kenya’s banking.

Like commercial lenders, the IMF has been fiercely opposed to the law that came into force on September 14.

Banks want the law scrapped, claiming it is hurting low income borrowers “hence defeating its intended purpose”.

Through their banking lobby, the Kenya Bankers Association, the lenders warned last month that they will divert more funds to treasury bills and other opportunities in the forex market rather than lending to borrowers, as they consider government debt less risky and more profitable.



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