The loan interest rate cap, as part of the Banking Act passed by parliament two years ago has been repealed by the High Court of Kenya, which Justices Tuiyot, Kamau and Ngetich termed as unconstitutional. Since it’s gazzettement, the law ensured that commercial banks capped loan interest at a maximum of just 4% above the Central Bank Rate. This saw consumers benefit from the low interest rates of loans.

Two verdicts we given by the judicial officers, suspending the interest rate cap for a year in order to allow parliament to revisit and amend the said section of the act while also declaring immediate removal of the section that penalizes contraveners of the act. Reason being the penalties only affect banks and chief executives but not consumers and other individuals who also go against the will of the act.

The future Cost of Loans now rests in the hands of the August House Members, who have to suggest other ways to control loans and their interest rates within the next 12 months. This is seen as a return to the previous state of affairs where commercial banks had the liberty to fix terms of their credit facilities freely. Banks have been on the grumbling side claiming inability to determine the risk in their consumer loans.

Theoretically, the move was seen as a win to the consumers but in reverse, they have encountered many challenges in securing credit facilities from the banks due to the latter’s stringent measures put in place after the introduction of the controversial law. This has had a negative effect on the Private Sector Credit Level that has failed to register an annual growth of over 5% since the law’s introduction.

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