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Expert warns on Kenya interest cap

By Samuel Sanya

Added 1st September 2016 02:37 PM

"It will distort financial markets and it will definitely encourage informal lending in the economy."

The Kenyan law that effectively capped commercial bank interest rates has set a dangerous precedent that will create consequences to the economy, Stephen Kaboyo, the UTL chairman and Alpha Capital Partners CEO has warned.

"It goes against the theory of free markets which are regarded as the most ideal where no single individual or group can determine the price but demand and supply dynamics. Price controls do not work well," he said in a statement.

"This is likely to reduce credit available, it will distort financial markets and it will definitely encourage informal lending in the economy," he added.

Kaboyo noted that while he agrees that commercial banks need to be encouraged to lower their lending rates, controlling rates is not the best approach.

He added that the industry must come to terms as to why the structure of interest rates remain so.

"I am also of the view that as we grapple with high interest rates, there other interventions that need to be exhausted  and these are; promoting financial literacy, price transparency, providing credit information to the public  and putting in place consumer protection frameworks.

“All these help the public to make the right choices," he said.

In the aftermath of the law capping interest rates, listed banks in Kenya lost Ksh45b (Ush1.5 trillion).

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