The President’s recommendation to Parliament to repeal the interest rate cap law has sailed through Parliament, paving the way for the repeal of the law.

The President refused to assent to the Finance Bill, 2019 (the Finance Bill) and referred the Finance Bill back to Parliament with a memorandum outlining the reasons for his refusal. His concern was the presence of the interest rate cap and he recommended that it be abolished by repealing section 33B of the Banking Act.

Section 33B of the Banking Act was introduced by the Banking (Amendment) Act, 2016. It provided for, among other things, a ceiling of 4% over the rate set by the Central Bank of Kenya on interest charged by financial institutions regulated under the Banking Act.

Parliament was to consider and vote on the President’s reservations on the Finance Bill on 5 November 2019. The Constitution requires a vote of at least two-thirds of the Members of Parliament (MPs) to veto the President’s memorandum. Out of the 233 MPs required to veto the President’s memorandum, only 161 MPs were present. The Speaker of the National Assembly therefore indicated that the motion could not proceed to the voting stage and ruled that the Finance Bill effectively passed with the President’s reservation.

Moving on to the next steps, the President’s reservations will be incorporated in the Finance Bill. It will then be forwarded to the President within 7 days of Parliament passing the Bill for his assent. The President will then have a further 7 days to assent to the Bill. If he does not assent to the Bill after it is re-submitted, the Bill shall be deemed to have been assented to on the expiry of the 7 day period after it was re-submitted.

Once assented to by the President, the Finance Bill will be published in the Kenya Gazette and become law. This will effectively repeal the interest rate cap and allow banks flexibility with regards to pricing the risk of lending.