The International Monetary Fund (IMF) has asked Kenya to scrap the law that capped interest rates charged on loans. This law is contained in the 2016 Banking Amendment Act.
According to IMF, although the overall macroeconomic outlook is positive, with the country experiencing robust growth and reduced external imbalances, interest rate controls are likely to reduce access to credit, weighing on growth.
“Although the adverse effects of the controls are manageable in the near-term, if maintained, they could potentially pose a risk to financial stability. Therefore, it is essential to remove these controls while taking steps to prevent predatory lending and increase competition and transparency of the banking sector,” said Deputy Managing Director and Acting Chair of IMF’s Executive Board Tao Zhang in a statement Thursday.
Data from the Central Bank of Kenya (CBK) showed that while loan applications increased dramatically following the enactment of the law, lenders did not approve most of them.