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Kenya Retains Rate Caps in New Draft Law for Financial Sector

Kenya Retains Rate Caps in New Draft Law for Financial Sector

(Bloomberg) -- Kenya plans to overhaul legislation governing its financial sector by creating new agencies that regulate the cost of credit and protect consumers, according to a draft law on the Treasury’s website.

The Financial Markets Conduct Bill seeks to “promote a fair, non-discriminatory marketplace for access to credit, to provide for the establishment of uniform practices and standards in relation to the conduct of providers of financial products and financial services,” according to the document. It also aims to establish the Financial Markets Conduct Authority, the Financial Sector Ombudsman and the Financial Sector Tribunal.

The draft law does not do away with interest-rate limits that parliament introduced in 2016, which capped credit costs at 400 basis points above the prevailing benchmark central bank rate, even though the Treasury has conceded the law has hurt access to credit in East Africa’s biggest economy.

While Treasury Secretary Henry Rotich said the ministry was working on new legislation to either repeal that rule or tone it down, the Financial Markets Conduct Bill retains the state’s prerogative to set commercial interest rates.

Lenders can’t charge or recover from borrower or guarantors “any amount on account of interest under the contract that exceeds the maximum rates as may be prescribed by the authority from time to time,” according to the document. The earnings of Kenyan banks have suffered as a result of the existing law, falling the most in at least a decade in 2017, according to central bank data.

President Uhuru Kenyatta said that despite having one of Africa’s most efficient financial markets, the country’s lenders enjoy some of the highest returns-on-equity on the continent. The rate cap delivered his election pledge to bring down credit costs. While it’s achieved that, the law has hurt the private sector’s access to loans and forced a deceleration in lending growth to 1.8 percent in January from 17 percent two years earlier, according to the central bank.

To contact the reporter on this story: Ramah Nyang in Nairobi at rnyang2@bloomberg.net

To contact the editors responsible for this story: Paul Richardson at pmrichardson@bloomberg.net, Helen Nyambura, Vernon Wessels

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