MICROCAPITAL BRIEF: Kenyan Government Caps Bank Lending Rates, Sets Minimum Deposit Rates

The government of Kenya recently passed legislation to cap the interest rates on bank loans at 4 percent per year above an undisclosed benchmark reference rate and also set the minimum deposit interest rate at 70 percent of the reference rate. Observers have surmised that the benchmark rate would be the “Central Bank Rate” set by the Central Bank of Kenya, which is 10.5 percent per year as of November 2016 [1].

Small enterprises and other borrowers have expressed support for the move, anticipating lower lending rates. However, Equity Group Holdings CEO James Mwangi reportedly stated that, “small lenders will struggle to raise cheap deposits to fund lending.” [2] Michael Mithika, the CEO of financial consultancy J.M. Mantle & Co and Director of the SME Finance Summit Africa event argues that because of the law “lending to Small and Medium-Enterprises (SME) may now be constrained and investments in this sector are being reconsidered.” [3]

By Sharanya Madhavan, Research Associate

Sources and Additional Resources:

[1] Quartz: Kenyans got the better loan terms they wanted, but banks still aren’t ready to lend

[2] Bloomberg: Interest Rate Caps Boon for Big Kenyan Banks, Equity CEO Says

[3] Direct contact with SME Finance Summit Africa Event

Do you know that MicroCapital publishes the MicroCapital Monitor newspaper each month? Find out more at https://www.microcapital.org/products-page/