Saccos offering banking services to heed CBK directives on loan interest

Saccos offering banking services to heed CBK directives on loan interest rates

‘’Customers have perceived the high profitability of banks as exploitative given the high cost of credit, and banks should place greater emphasis on long term environmental, social and governance issues,’’ Njoroge said.

By Wycliffe Musalia

Savings and Credit Cooperative Societies offering banking services should heed to the Central Bank of Kenya directive on interest rate charge they price on their loans.

According to the regulator, lenders should price their loans more responsibly and transparently bearing in mind the needs of their customers and economic conditions.

CBK Governor Patrick Njoroge earlier in press briefing promised a no return to the “Wild West banditry” witnessed in the banking sector before the rate cap law in 2016.

‘’Central Bank of Kenya has set the pace by defining a clear vision of a banking sector that is responsible, disciplined and aligned to customers’

CBK Governor Patrick Njoroge In November, President Uhuru Kenyatta approved the Finance Bill, 2019 which saw the interest cap repealed, since it was imposed on banks in September 2016.

needs. Four pillars underpin this vision: risk based credit pricing, transparency, customer centricity and ethical culture,’’ Njoroge said.

Mr. Njoroge asked banks to factor in both positive and negative information from Credit Reference Bureaus (CRBs) while computing interests’ rates for their customers.

He added that there is need for further improvement on the Cost of Credit website launched by Kenya Bankers Association in 2017 to ensure lenders fully and widely disclose total loan pricing.

CBK has compelled banks to review their business models to accept lower returns that take into account the long term needs of their customers and the economy. The rate cap had imposed limitations to commercial banks’ lending rates at 4% above the Central Bank Rate (CBR).

The Monetary Policy committee (MPC) has slashed the CBR rate to 8.5 per cent from nine per cent.

However, loans issued under the old law will continue to be serviced at the old interest rate. Many Saccos in the country have been offering loans with interest rate of up to 14 percent per annum on reducing balance.

Borrowers are still in fear following the repeal of the interest rate cap, despite the assurance from the Kenya bankers association that loan interests will be charged based on the law.

To lure more members, Saccos should heed to the call by the CBK by offering affordable interest rates on their loan products.