I agree with you @ 2012 there should be some sort of regulation when it comes to lending rates,personally I believe its unethical for a bank to charge 25% upwards for any loan while on the other hand you,l be lucky to get a measly 4% p.a on your deposits...

@2012, good arguments. Most would now agree pure Capitalism as a market system is flawed. Government regulation is required to protect the marketplace from manipulation, and even enhance competitive forces that nurture Capitalism.


Hence the min/max caps on interest spreads should be set, beyond which social aspects of the macroeconomy would detoriate - banks running tyrant and poverty sharply increasing.

Coincidentally, wasn't Central Bank intervention in effects of USD/KES crisis towards the same end? Our collective good was at the mercy of the banks. Too much regulation BAD; too little even WORSE.

@kizee1 in my opinion, the regulation is not meant to make credit cheaper but is supposed to prevent it from being outrageously expensive [limit/cap on spread] and I liken it to the in-duplum rule.

Okay I agree price controls are to be frowned upon, but not all regulation is price control.

All economies and markets are regulated to some extent. A laissez-faire state and completely free market has never existed.

@mkeiy a cap on lending rates will have a detrimental effects on the common mwananchi... imagine if the CBR was 18% and interest rates were capped at 22%..

Why would I as a bank lend to small scale farmer @ 22% and incur all the risk of default when I can simply lend to GOK through risk free treasury bonds @ 20-21%???

There will be absolutely no incentive to lend to the common man so the banks will hoard the loans to them..

@guru 267...I tend to disagree,you are looking at only one side of the situation what happens when the CBR rate is between 6-8%,when government securities arent an attractive form of investment,banks will have to lend to the common man so as to boost profits,the kind of regulation we are talking about isnt retrogressive or harsh as we can put it rather one that will bring some sort of sanity in the banking industry and to the lending rates that the citizens are exposed to,25-28% is morally wrong...i also tend to think that kenyan banks should diversify so as to earn revenue from different sources that way they can afford to have lower lending rates while in the meantime maintaing or even growing their profits in the long run...

@guru, What i don't get is how, by lending to the same farmer at 28% solves the problem.
Higher interest rates lead to higher defaults,but compensated by higher repayment above principal.

The amounts that gov't borrows is not infinite,banks will have to lend the extra cash.

Interest rates are not going to remain above 15% for ever, how about when CBR comes down to single digits?
Ain't interest cap going to work for that farmer?

I say cap them. A range of between 3%-5% won't be that bad.

You misunderstand my point. In your post, you used regulation and price control interchangably, the two are not synonymous.


My point was all 'price controls' are Regulation. But the gambit of Regulation (an inescapable reality) is wider than just 'price controls'.

In Kenya for example, these interventions had a different key motive in my view, while only affecting price indirectly:
- In duplum
- Freeze currency speculation
- Setting telecom MTR rates
- Capping Margins on interest rates

@guru...the system will always find a way of stabiling itself and creating equilibrium.Yes bonds and short term paper will- be around 8-9% when the CBR rate comes down to 5%,banks will still be forced to lend out not only to HNWI and big firms but to everyone who is credit worthy as default rates will be much lower and the uptake of loans will be huge.Competition between banks will dictate who makes the most profit and the bannkor banks that will be willing to expand their loan portfolio will edge out those that will be conservative and selective in their lending...countries that have lending rates @ 5% still have baks which loan out individuals,the same case will apply here..

@the deal Have you seen the rates the farmers with no collateral pay... Some are payin 26-29% while we all know the secured loans are going for 19-21%..

This is why equity lends to them.. Take this away and their source of credit is gone.. It will be The destruction of the SME sector..

Some times I think that those who advocate for controlling of bank interest rates have probably never borrowed from a bank. Reason: why would anyone in their right mind borrow at 25% when the major banks are lending at around 15%?

Proof: Last month a neighbour needed to buy a car; she walked into Equity and enquired. They said car loans are at 14.5%. She signed the papers and three weeks later she had the car.

So, I ask: where are these banks that are charging 25%? HAKUNA KITU KAMA HIYO!!

DISCLAIMER: I am not an employee of EQUITY, but I am a shareholder.