President Uhuru Kenyatta has rejected the 2019 Finance Bill and has reverted it back to the Members of Parliament to remove the rate cap repeal to allow the Bill to go ahead.
The head of state has acted in solidarity with the Central Bank of Kenya and the National Treasury which have argued that the rate cap was hurting the economy.
The Bill has been taken back to National Assembly and the President has asked the MPs to repeal commercial lending rate caps which economists have said that it led to the credit squeeze.
Their argument is that the cap has cut private-sector loan growth because banks have avoided lending to customers deemed as risky, including small and medium-sized businesses as well as individuals who borrow for consumption.
Kenyan taxpayers will be left at the mercy of banks and other lending institutions which will charge borrowers as they please should the rate cap be scrapped from the 2019 Finance Bill.
The President’s move comes three weeks after MPs approved the Bill which according to them, entrenched bank interest rate caps. They voted in solidarity to block the National Treasury from returning the country to a free market regime.
In 2016, the MPs imposed caps on commercial lending rates at four percentage points above the benchmark central bank rate to cushion Kenyans from high loan costs.
Rate cap law has been blamed for stifling the growth of small banks and hurting private sector lending while making it easier for the government to borrow from the domestic market.