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Kenya to repeal law capping interest rates

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Kenya to repeal law capping interest rates

Kenyan Finance Minister Henry Rotich said he will propose to repeal a law capping commercial banks' lending rates, introduced by the government in 2016, which critics say has slowed private sector credit growth in the country.

The law limits how much Kenyan lenders can charge on loans at no more than 4 percentage points above the central bank's base rate and requires them to pay out interest on deposits of at least 70% of the base rate. The IMF is also critical of the rate caps and has made the law's revision or removal a condition for the extension of a standby credit facility available to Kenya.

"In order to enhance access to credit and minimize the adverse impact of the interest rate capping on credit growth, while strengthening financial access and monetary policy effectiveness, I propose to amend the Banking (Amendment) Act, 2016 by repealing section 33B of the said act. This is to enable banks and other lenders to provide more credit especially to borrowers they consider riskier," Rotich said in his latest budget speech.

However, pushing through the proposed removal of the cap remains a challenge as lawmakers who supported the law still oppose its repeal, Reuters reported June 14.

The finance minister also outlined proposals for tax measures, including the introduction of a so-called Robin Hood tax of 0.05% on bank transfers amounting to 500,000 shillings or more.

As of June 14, US$1 was equivalent to 101.07 Kenyan shillings.