Kenyan Banking Change
The world’s first bank according to historical records was opened in the 15th Century in Barcelona.
Paper money first started in China in the 14th Century and reached Europe in Sweden in the 17th Century.
The concept of Central Banks started in Europe with England opening its Central Bank in the 17th Century.
According to Investopedia, an Interest Rate is:
“Interest rate is the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR). The assets borrowed could include, cash, consumer goods, large assets, such as a vehicle or building. Interest is essentially a rental, or leasing charge to the borrower, for the asset’s use. In the case of a large asset, like a vehicle or building, the interest rate is sometimes known as the “lease rate”. When the borrower is a low-risk party, they will usually be charged a low interest rate; if the borrower is considered high risk, the interest rate that they are charged will be higher.”
In simple words, this is the “profit margin” for the banks on your money.
On 24th August, 2016 President Uhuru Kenyatta signed the 2015 Banking (Amendment) Bill into law.
According to a recent report by the Oxford Business Group, Kenya has over 40 commercial banks and over 10 microfinance banks serving a population of over 40million whereas Nigeria has about 22 banks serving 180million people.
Another significant change made recently before the Banking Bill was the introduction of the Kenya Banks Reference Rate (KBRR). This was created by the Central Bank of Kenya to replace the base-lending rate used by commercial banks to price their products.
While this Banking Bill is affecting the commercial banks in Kenya, it does not affect mobile bank loans or those from microfinance institutions, the interest rates will remain high.
While the share prices of a few top banks dipped to some of their lowest levels right after the signing of the Bill, the common Kenyan is going to benefit.
Also, bankers are yet to find out whether this change will also affect current loan contracts. The coming few weeks will surely determine the fate of many from existing borrowers to new loan applicants.
Kenyans will continue to borrow loans for cars and homes because these are significant milestones. But the rising cost of living, stagnant salaries, unemployment and less access to borrowing capital for entrepreneurship may prove to be a disaster in the making. If the interest rates on the existing loans do not drop then it will surely discourage them to borrow anything for a while to come. Borrowing is necessary sometimes to keep the business running, homes happy and lives fulfilled and for a very long time Kenyans have been strained in living under debt. Sometimes you are taking another loan to pay off another loan. Moneylenders will loose business but then again this is an opportunity for the common person not to get carried away and take more loans or continue to mismanage their money.
What you save today is a gain tomorrow. Bank executives may not feel the pinch of losing a gap in their salary but the average worker can invest in his or her future, clear a bill, pay a school fees and do more. The President’s decision was the only way to stop this long term almost mafia moneymaking pyramid by the banks. This is not a drastic move compared to other countries in Europe or Asia who also have their interest rates capped by the Government.
The key is to keep creating employment and provide financial and any other support to businesses so we become more self-reliant and when we are borrowing there is a more wholesome benefit than just the bank manager sitting in a corner office. This picture needs to get bigger for the average person.