Mobile loans have been seen as a lifesaver by many but it is just a new goldrush minting billions from many Kenyans from the high interests they charge. These interest rates on mobile loans could soon be capped if a new Bill in the National Assembly becomes law.
The proposed law, which seeks to cure the ambiguity of the legal provision that introduced a ceiling on interest charged by commercial banks, has expanded the meaning of “loan” to include any “advance, credit facility, financial guarantee or any other liability” as defined by the Banking Act.
Currently, a bank or a financial institution regulated by the Central Bank of Kenya (CBK) is expected to set maximum interest rate chargeable for a credit facility at no more than four per cent – the base rate set and published by the regulator. However, under the proposed law, the term “credit facility” has been replaced with “loan.”
The High Court, however, recently suspended implementation of the proposed law, giving legislators one year to put in place appropriate mechanisms.
Loans given by banks have been capped at no more than four percentage points above the Central Bank Rate (CBR) currently at nine per cent.
This means that no regulated bank today charges more than 13 per cent.
However, mobile loans offered by commercial banks have not been affected by the legislation.
Interest rates by mobile lenders are very high as an M-Shwari loan of Sh50,000 will incur a facility fee of Sh3,750 while getting the same amount from mobile loan platform Tala costs about Sh7,500 while the same amount borrowed at KCB with a repayment period of 12 months and a 13 per cent interest rate costs you about Ksh 3,699.21
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