Bank executives risk jail time not exceeding two years or paying a Ksh. 100,000 fine if they fail to allot loans to small and medium-sized enterprises (SMEs), the Central Bank of Kenya (CBK) through its Governor Patrick Njoroge has revealed.
According to the CBK, in a news report by the Business Daily, the new regulation took effect from March 1, 2019 and it was structured to push lenders to increase credit flow to SMEs whom they have starved of loans following the capping of bank rates.
“Interest rate caps severely constrain the formulation, conduct and effectiveness of monetary policies and these caps have hampered access to credit by growth sectors, particularly small and medium sized enterprises,” the CBK Governor Patrick Njoroge is quoted as saying by the Business Daily at a media briefing following the Monetary Policy Committee meeting in Nairobi on Wednesday.
“Banks should do the right thing and increase the flow of credit to SMEs,” the CBK Governor added.
The CBK Governor similarly called for the abandonment of the rate capping laws as it is greatly affecting the country’s economic trajectory.
Kenya’s regime presented a cap on lending interest rates in September 2016 in an effort to lower costs for persons and small businesses but the measure has had the effect of suppressing the credit market as banks become more wary in their credit offering.
As a result, small businesses and individuals have had to brave unfavorable lending conditions by banks which have concentrated their loan disbursement to big companies ever since the rate cap came into effect.
Just recently, the High Court of Kenya called for the abolishment of the rate cap law citing it as unconstitutional. However, the ruling was suspended for a year to give the national assembly ample time to review and amend the regulation.
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