November 29, 2022

Kiambu MP, Jude Njomo, has tabled a bill in parliament that if passed, will see loan borrowers punished for accepting some loans.

The bill proposes that anyone that accepts a loan with higher interest than the set cap will face a fine of not more than Ksh1 million or a maximum of one year in jail.

Njomo, who was also the architect behind the interest cap placed on bank loans, moves to try and tame the rampant mobile lending apps that charge high interests on their loans.

Kiambu MP Jude Njomo

The regulations, if passed by the August house, will empower the Central Bank of Kenya to keep tabs on the interest caps.

As it stands, the penal provision under subsection (3) is couched in discriminatory terms as it applies only to banks and financial institutions yet the legal obligation is aimed at both the bank/financial institution and the borrower/customer… amendment) is therefore necessary as it seeks to create a penal provision that is not discriminatory,” Njomo noted in the memo attached to the bill.

Introduced in September 2016, the cap limits lending rates to 4 percentage points above the central bank rate, currently at 9 per cent.

The cap was supposed to cut the costs of credit for businesses and private consumers, boosting access to loans.

This new bill published July 5, is seen as an attempt to reinforce the rate cap, which had been suspended by Treasury CS, Henry Rotich, during his budget speech, and make it constitutional in line with a March 2019 high court order.

In the ruling, the court gave Parliament a year to redraft the law capping rates, stating that the original one was vague and that terms like ‘credit facility’ and the ‘Central Bank Rate’ (CBR) are open to misinterpretations.

In the latest draft bill though, Njomo appears to fix the wording in line with the High Court’s ruling with ‘credit facility’, now reading ‘loan’ and defining the ‘rate’ as the one captured under section 64 of the Central Bank Act.
 

Embattled CS Henry Rotich

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