The President of the Republic of Kenya, assented to the Banking (Amendment) Act, 2015 on August 24, 2016. The Act seeks to protect consumers from high interest rates being charged by Banks and financial institutions. Borrowers in Kenya have over the years been subject to predatory lending practices, they have been faced with overwhelming interest rates due to Banks having the flexibility and the power to determine interest rates.
The principal object of the Act, is to provide a mechanism for regulation of banks and financial institutions' rates through the introduction of ceilings being a regulatory measure that the maximum interest rate that a Bank or a financial institution can charge a borrower for a loan.
The Act amends section 33A of the Principal Banking Act (cap 448) of the Laws of Kenya by insertion of a new section bestowing powers to the Central Bank to enforce interest ceilings.
It provides that a Bank or a financial institution shall set the maximum interest rate chargeable for a credit facility in Kenya at no more than 4%, the base rate set and published by the Central Bank of Kenya. This means that no Bank or financial institution will have the liberty of setting their own interest rates as before, where they were able to exercise this flexibility they will have to comply with this section by ensuring that the interest rate does not exceed 4% of the base rate set by the Central Bank of Kenya.
It is also provided that the minimum interest rate granted on a deposit held in interest earning in Kenya should not go below 70% of the base rate set by the Central Bank of Kenya.
The Act also attaches criminal sanctions to a Bank or financial institution for entering into an agreement or an arrangement with a person to lend directly or indirectly at an interest rate in excess of that prescribed by the law. A bank or a financial institution that contravenes this shall be liable to a fine of not less than One (1) million shillings, or to imprisonment for a term not less than One (1) year, or to both.
It shall be also be required of a bank or financial institution to fully disclose to a borrower all the charges and terms relating to the loan prior to granting a loan. This is a very important aspect as now a consumer can compare the prices and terms of credit from different sources.
As regards commencement of the Act it is not provided when it shall come into force, however the Interpretation and General Provisions Act under Section 9 provides that "an Act shall come into operation
on the day on which it is published in the Gazette however if it is enacted in the Act, or in any other written law, that the Act or any
provision thereof shall come or be deemed to have come into operation on some
other day, the Act or, as the case may be, that provision shall come or be deemed
to have come into operation accordingly." In this case the Act is silent on commencement and hence it will be deemed to come into force on the date in which it is published in the Kenya Gazette.
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