After President Kenyatta signed the interest rates Bill into law, you would have expected a street festival, an extravaganza of joy and bravado. After all, legislator Jude Njomo and President Kenyatta won where former MP Joe Donde and former president Mwai Kibaki failed.
Instead, across the board, we got a bag of mixed feelings, perhaps out of the sober realisation that although Parliament and the President had achieved quite a feat, the final outcome of access and low interest rates on loans is still largely unknown.
But is the capping a bad thing? Well, not on the face of it. Granted, the interest rate will be capped at a maximum 14.5 per cent, but every Tom and Mary will still walk individually and humbly into the banking hall.
Without parliamentary escort and no social media army to lend voice to your demand, nay request, we will still individually need to sit down with the bank’s credit officers (many of whom may lose jobs in the interim) and ask for that loan.
At the end of the day, the banks will have the prerogative whether to lend to “high risk” Kenyan borrowers or better invest in other less risky instruments. So, do not pop the champagne yet.
However, the implications of this law are broader. What does it mean for Kenya’s fidelity to a liberalised market economy? At the risk of sounding alarmist, does this set a precedent for other sectors or was it, in the face of an election, just revealing the left signature hand of President Kenyatta the politician not the businessman? What message does it send to our regional integration and trading partners?
In November 2013 in Kampala, the East African Community Monetary Union (MU) Protocol was signed, thus setting the stage for the next phase of the regional integration journey. In theory at least, the Monetary Union is expected to fuel trade through reduced transaction costs and region-wide price harmonisation. Cross-border flows will be easier and more efficient.
Since then, a lot has been done by the technical gurus on the nuts and bolts of an EAC Monetary Union engine — protocols, procedures, mechanisms — to drive the EAC train.
One key institution will be the East Africa Central Bank, whose role, in conjunction with the national central banks, will be to coordinate the MU, including harmonisation of monetary and exchange rate policies. Those functions are expected to be independent of national interest influence.
So, while Kenya’s capping of interest rates is of national interest and which, on the surface, could benefit ordinary citizens, it portends a challenge in the context of the ongoing regional process to harmonise policies and procedures.
It may complicate the game for banks from the region eyeing the local market as an investment destination. As rates fall, new investment money could go elsewhere at Kenya’s expense.
There is no denying that banks needed to come down from their lofty pedestals of yesteryear when one had to maintain a minimum balance of thousands of shillings in one’s account. Now mama mbogas everywhere can muster courage to walk into a banking hall and hold their own.
Banks have not yet felt the pain of Wanjiku and that is the source of the frustration that President Kenyatta mentioned. No wonder financing Kenya’s number one economic activity — agriculture, which employs directly and indirectly over 60 per cent of the population — has not happened as it should, and that goes for the region too. Banks must live and let those who bank with them live too.
As we retreat into national interest, we must not forget our regional obligations. Kenyan banks have a presence in all the six EAC member states. Will they charge one rate for home borrowers and a different one for regional citizens? Further, what is Kenya’s exit strategy from the price control law? How and when will we trigger the exit, especially as the currency union takes centre stage?