On Tuesday 5 November 2019, the National Assembly will vote to either retain or remove the interest rate cap that has regulated interest rates on lending in Kenya since the enactment of the Banking (Amendment) Act, 2016.

This critical vote follows the President’s refusal to assent to the Finance Bill 2019 in its current form on the basis that the continued capping of interest rates has given rise to unintended effects that are significant and damaging to the Kenyan economy. The President has therefore urged Parliament to repeal the interest rate cap in its entirety.

On 30 October 2019, the National Assembly’s Finance and National Planning Committee accepted the President’s recommendation, but included an additional recommendation that the repeal of the interest rate cap should not have retrospective effect. This would mean loans already issued subject to the interest rate cap would continue to be in force on the same terms for the duration of the said loan agreements.

Way forward

The National Assembly now has the following three options:

• adopt the President’s recommendation by a simple majority, effectively removing the interest rate cap;
• adopt the President’s recommendation by a two-thirds majority vote, but with the modification on non-retrospective application as proposed by the Finance and National Planning Committee, should the Speaker agree to this modification; or
• reject the President’s recommendation entirely by a two-thirds majority vote, thereby retaining the interest rate cap. In this case, the Finance Bill will be forwarded as is to the President for assent. If the said Bill does not receive Presidential assent within 14 days, it will automatically become law and the interest rate cap will continue to apply.

If the interest rate cap is repealed, it is expected that going forward the rate of interest charged by lenders will be determined by a risk-based credit scoring method.

We will provide you with a further update once the National Assembly takes a vote on this critical issue.