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By HABIL OLAKA
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In the past two years, the introduction of price controls on bank loans and deposits has dominated the speech with a wave of d & # 39; public interest in the matter. Recently, the Treasury's 2018 finance bill called for the repeal of "tariff ceilings".
The 2016 Banking Act was motivated by the need to increase credit, especially for micro and small businesses.
He also sought to promote a culture of saving through the regulation of interest rates – a radical change from the conventional principles of market dynamics.
Stakeholders – including Kenya Bankers Association (Kenya's most fervent defender of market liberalization), the World Bank and the International Monetary Fund – have conducted studies to establish the import of legislation.
Market badysts such as the Institute of Economic Affairs and Cytonn Investments also raised a "red card".
All investigations revealed that the law did not achieve the intended purpose, but rather precipitated the expansion of credit in percentage in the private sector – against 20% in 2015. In addition , in the space of one year, we saw 1.2 million less loans. The average loan size has also increased by 47 percent – a move towards large companies and middle and upper clbad borrowers.
The law actually benefits the rich, not the "Wanjiku". This should not be the case, in particular because the banking sector (the most regulated of all industries in Kenya) is overseen by CBK, which has various policy tools, including prudential guidelines, to moderate the practices of banking. 39; industry.
million. Cytonn noted that if ceilings can address the issue of bank spreads, they would lock in SMEs and other "high risk" borrowers and that the law was based on "an unreasonable premise that the highest risk premium on the Kenyan market is
The proponents of the ceiling argued that the pace of borrowing was already trending downward. But the law has introduced a distortion from which credit markets have not recovered.
As a general rule, the market should rebound within three months of a shock. In this case, however, tariff ceilings prolonged or even exacerbated the situation. If this arbitrary price control was good for our economy, we would have seen a slight rise by January 2017.
Indeed, there are markets with controls over loan prices. However, very few of them, if any, have the same extreme approach as ours.
In South Africa, the maximum limit is about 35.4% while the preferential rate of commercial loans is 10.5%.
Unleashing interest rates from the natural dynamics of the market will open bank financing, allowing borrowers to access capital to have the opportunity to innovate and grow.
For this reason, the initiative of the Secretary of the National Treasury Office Henry Rotich to repeal the law is welcome.
It will enable the Treasury and the CBK to work with sector stakeholders to chart the best pathway that will serve the interest of the economy while promoting financial inclusion and protection of the economy. consumers.
Dr. Olaka is the Chief Executive Officer, Kenya Bankers Association (KBA). [email protected]
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