(Updates with finance minister’s comments)
NAIROBI, April 13 (Reuters) - Kenyan lawmakers have ruled out scrapping a law that caps commercial lending rates, local newspapers reported, after a meeting between the lawmakers and the central bank governor.
Kenya capped commercial lending rates in September 2016 at 4 percentage points above the central bank’s benchmark rate, which now stands at 9.5 percent, in an attempt to limit the cost of borrowing for businesses and individuals.
The central bank said last month the cap probably shaved last year’s estimated economic growth rate by 0.4 percentage points because it restricts credit granted to small and medium businesses who are deemed too risky by lenders.
Business Daily quoted Jude Njomo, the lawmaker behind the law and a member of parliament’s finance committee, as saying anyone calling for the repeal was wasting their time.
“The central bank governor and Treasury have no power or mandate to amend laws. That is the prerogative of parliamentarians and therefore, the rest who are speaking, are just making noises that will change nothing,” Njomo was quoted as saying.
Finance Minister Henry Rotich downplayed Thursday’s exchange in parliament, saying the Treasury would present a new bill to lawmakers in June to remove the rate cap but still ensure lending rates are not too high.
“I don’t think I would go by the discussions of yesterday... it is premature to conclude that parliament will not consider,” he told reporters on Friday.
“We are going to propose a new bill which deals with credit management in this country.”
He said the new bill would deal with issues of consumer protection, access to credit by small businesses and the conduct of lenders.
Asked if the bill would translate into consumers paying more for loans, Rotich said it would not; “We can’t introduce a bill that will worsen (things)... interest rates will come down.”
The cap had been a cosmetic solution that did not deal with the root causes of the high lending rates, leading to the unintended consequences like small firms being locked out of the credit market by lenders who say they cannot price risk properly while the cap is in place.
The government had said when it introduced the policy that banks were reaping high returns without benefiting customers.
But the central bank, bankers and economists have said the policy would stifle the lending needed to spur on the economy.
With the International Monetary Fund putting pressure on Kenya to drop or modify the lending cap, Finance Minister Henry Rotich said in March that it was unsustainable and the government was planning modifications. (Reporting by George Obulutsa and Duncan Miriri; Editing by Toby Chopra)