On September 14, a law in Kenya will cap commercial bank's interest rates at 14.5%, 4 points above the central bank's interest rate (10.5%). This law will also enforce banks to pay depositors no less than 70% of the central-bank rate. This means that the banks are being asked to lend to private businesses the same amount as lending to the government.
How bad the economic impact is depends on how the businesses react. Kenyan economist, Anzetse Were, thinks businesses will find other sources of credit. A solution is for people to start tipping more. The
Chief Executive of Kenyan Bankers Association thinks that while most
banks will have to fire employees, close branches, and lend less, some
will try to increase their use of technology to cut their costs.
This article explains that compared to economies without interest rate caps, African economies with caps have a lower ratio of credit to GDP. A few consequences of interest-rate caps is that the credit will flow to more dependable borrowers instead of "needy but risky" businesses. However, the cause of high interest rates is because the government is "splurging" money, not because of the banks' behaviors. So, the people who will benefit the most will be the people who passed this law. (Campaigning in Kenya is expensive, so cheaper loans would mean cheaper campaigning.)
I think it is unfortunate that the law is restricting what the banks can do because of the faults in the government's spending. It is especially unfortunate because this law will really only benefit the wealthiest people (the people who passed the law).
http://www.economist.com/news/finance-and-economics/21706515-curbing-lending-rates-makes-good-politics-bad-economics-ceiling-whacks
No comments:
Post a Comment