Brief:
Rotich says government has worked to solve root cause of high interest rates
Margin above KBBR rate should be risk based.
Government will cut borrowing from the domestic market. Domestic borrowing has always resulted into high interest rates for the private sector.
Government is working on number of Bills to cut interest rate.
The Government has dismissed the move by legislators to cap interest rates as a ‘cosmetic’ stunt that will barely address the root cause of the problem. National Treasury Cabinet Secretary Henry Rotich said that unlike members of the National Assembly, the Government has for the last five years been working on ways of bringing a lasting solution to the issue of high interest rates that had made life unbearable for most Kenyans. Rotich said that since 2013, the Government had come up with a raft of measures aimed at reining the runaway cost of lending. Since then, the Jubilee administration has come up with measures that will eventually relieve consumers of the heavy burden of borrowing. The idea of Kenya Banker Reference Rate (KBRR), he said, is one of the recommendations of these deliberations of reforming the interest rate regime. “Next area of reform was what margin should be charged. Whereas the margin should be risk-based, banks continue to define the way in which they calculate the additional cost beyond the Kenya Banks’ Reference Rate (KBRR),” he said. Moreover, Rotich said the Government will cut borrowing from the domestic market. Domestic borrowing has always resulted into high interest rates for the private sector. He said Treasury was working on a number of Bills that are aimed at lowering the cost of lending. One of the Bills seeks to protect consumers from exploitation by financial service providers while the other one will allow borrowers to use movable assets as collateral. “These are the solutions premised on why the interest rates are high rather than second-based solutions like controlling and all that,” said Rotich who took issue with the basis on which MPs were capping the price of borrowing. MPs recently passed a Bill that will see interest rates that banks or financial institutions charge on loans capped at not more than four per cent of the prevailing Central Bank of Kenya rate, which currently stands at 10.5 per cent. READ MORE President Uhuru yet to see Bill capping lending rates Of Kenya’s banks and rates CBK vows to ensure banks slash rates Should the President assent to the Central Bank (Amendment) Bill 2016 borrowers will start enjoying interest rates of as low as 14.5 per cent, a huge relief for some borrowers who have had to part with as much as 25 per cent. But Rotich warned that such benefits may not last long. “Coming up with an artificial interest rate and saying: ‘this is what the rate should be’ is very challenging because, first, how do you know the prevailing price in the economy?” Positive credit history He added, “Interest rate is the price of money, just as the price of this chair,” he said pointing to a chair. “If tomorrow you said this chair is supposed to cost two shillings, you will not see it in the market because it does not cost two shillings.” “Our approach is different. Our approach is to attack the root cause of the problem, not secondary solutions,” he added. However, most of these reforms are yet to be implemented as some of the bills have not even been debated in Parliament. Moreover, he said that the Government would soon start pushing for banks to start to use Credit Reference Bureaus (CRBs) not only as a means to look for credit defaulters but also borrowers with positive credit history. The latter can then enjoy better interest rates.rates as cosmetic stunt .CRBs will now ensure credit scores for all individuals can be priced according to their credit worthiness. To this end, CRBs will publish both positive and negative information to help banks give favorable rates to reliable borrowers. On Tuesday, banks through a memorandum of understanding proposed to immediately reduce interest rates charged on loans by 100 basis points in what some interpreted as a move to dissuade the President from assenting to the Bill. They also set aside Sh30 billion for lending to woman and youth at favourable interest rates. However, Members of Parliament said the move was unreliable since it was not grounded on any legal basis. They asked the President not to fall for what they thought were antics by financial institutions. Financial Service Authority Bill (FSA) proposes, among other things, to protect consumers from exploitation by financial service providers when they are applying for a loan. “The FSA Bill has the issue of consumer protection in the financial service, or what you call market conduct,” he said noting that this will regulate the financial sector to ensure that borrowers are not exploited when they sign their loan contracts. He said 90 per cent of collateral used is land which has prohibited a lot of people from getting financing.
The last time I checked, the government’s domestic debt was still heading north and there were no signs of the government slowing down the domestic borrowing rate and gusto.
Kwani this rotich guy is running a different treasury from the one we all know
Simply put supply and demand of a constant product. Their is 1,131 KES Billion in circulation.
NOTE: Kamwana is a Political Scientist - yeye haishiki vile kunaendelea. Rotich anatudanganya amefanya kazi mingi
[ul]
[li]The banks are making billions from our savings. The banks are foreign owned and invest in their Mother countries (U.K, India)[/li][li]Introduction of Credit Reference Bureau was meant to be an advantage to Us but is only used to deny loans[/li][li]Financial Service Authority Bill (FSA) is meant to merge the Capital Markets Authority (CMA), the Retirements Benefits Authority (RBA), the Insurance Regulatory Authority (IRA) and Sacco Societies Regulatory Agency (Sasra) into the Financial Sector Authority (FSA)[/li]
[li]Government budgetary operations in the Fiscal Year 2014/15 resulted in a deficit of KSh 500.2 billion[/li]
[li]Kenya’s public domestic debt KSh 136.2 billion[/li]
[li]Kenya’s public external debt KSh 322.7 billion[/li][/ul]
[SIZE=6]“Treasury dismisses MPs’ move to cap interest rates as cosmetic stunt” Our own Cabinet Secretary for National Treasury Henry K. Rotich AMELIPWA NA AKINA Baba & Mama Barcalys[/SIZE]
Government borrowing locally increases the demand for credit and therefore the rates go up. Banks are also more willing to lend the government because it is risk free and therefore lending to the private sector and to individuals become more more expensive.
A nice analogy is bei ya coomer for locals in coast when tourists are around vs the price when there are no tourists and whores have to lower their prices to encourage locals to buy their products.
this is when the government borrows by floating those treasury bonds and bills to Kenyans, local banks prefer to purchase because the returns are good and the risk is low. since banks have found better option to invest there is little left to lend @Guru who has high risk of defaulting thus leading to high interest rates.
That’s my ten cent opinion.
The Real Problem is Kenya Savings Interest Rate should increase.
Banks go to the Central Bank of Kenya and negotiate for 5 billion in cash so as to GIVE US WANANCHI. Instead of doing this they invest in bills at CBK, instead of giving us KENYANS as loans and go play Golf.
One form of domestic borrowing is treasury bills. I still stand by the comment I made below a few days ago. Even Rotich knows that bill is unworkable in the current economic situation Kenya is in.
Standard Chartered, CFC Stanbic and Citi Bank have agreed to lend the State $750 million (Sh77.25 billion) to be released within two weeks and hopefully help in reducing interest rates locally. The three lenders agreed to lend the funds at the London Inter-Bank Offer Rate (Libor) + 5 per cent, which would still be below 8 per cent effectively.
Read more at: Kenya seeks Sh77b syndicate loan in crisis borrowing - The Standard
I say sign the damn bill, let banks know they dont fucking own us. For the longest time CBK governors have always urged banks to reduce interest rates when conditions are favourable, they never do. They milk billions from this country but wont lend to our SMEs at favourable rates how the fuck are we supposed to grow then?
They only care about themselves, hit them where it hurts, sign the damn bill, 2 years later they will be good boys and girls.
People blaming the banks but forgetting that the government is to blame too. If the government is willing to borrow at 12%, why are you hopeful that you can borrow at 14%?