September 22, 2019

IMF Pushing Kenya to scrap interest rate capping law

By Jamhuri News Reporter

President Uhuru Kenyatta. Phoro: FILE

The International Monetary Fund (IMF) is pushing Kenya to undo the newly signed law capping the interest rates, citing that it is dragging the country’s economy.

The committee’s recent review of the country’s score, said the interest rates regulation has made monetary policy an uphill task and highly limited small enterprises form accessing microloans.

The board said that the capping is a threat to the country’s growth in the financial sector.

Private sector credit growth fell to 4.3% by the end of 2016 compared to more than 17% in December 2015, according to CBK data.

“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.”

Critics have however accused financial institutions of sabotaging the economy so as to force amendments to the interest rates law.

“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 Kiambu Town MP Jude Njomo who is the architect of the law.

The Secretary General of Consumers Federation of Kenya, Mr. Stephen Mutoro said that the IMF has consistently advocated for the amendment of interest rates cap ignoring the fact that failed fund policies have put the country in it’s current economic status and not the rates cap.

Financial institutions are fighting the law, arguing that microloan borrowers are hurting from its effects, while it’s meant to boost them.

The Kenya Bankers Association (KBA) has recently warned that they will invest more in Treasury bills and other areas in the Forex market than lending to borrowers, arguing that government debt is easier to gamble with and that it has more returns than the private sector.

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