This is how I see it playing out, should this law stand.
For one, equilibrium will be reached. So good news for the pro-rate cap crowd. Well sort of...

1. Freeze/slow down in lending: Already began btw. By removing their ability to adequately price the risk into loans(coz thats whats happened!) then better safe than sorry. The leaked memo yesterday was just an example. All will follow suit esp with the unsecured loans.

I don't see banks tightening the nose already around their necks. Banks primary business is to 'buy' and 'sell' money. So they stop doing that and do what? Sell mandazi?

True. But why do you assume that it will be you they sell to? The biggest cheering squad is also the one that will be locked out. Mark you, the law is on rate only. So for existing loans, the duration may be extended outrageously. So if you're cheering your reduced loan...ole wako. Government, external markets are all avenues for growth. Less risky even.


2. Refusal of deposits
Now plenty of people are confused by this. Nobody is saying a bouncer is at the door stopping you from depositing, it means less welcoming(free). Deposits believe it or not cost banks BIG time. Think of costs at point of deposit(branches, agents/cashiers/personnel, platforms), security of the deposits physical(guards, transit vans, safes) or digital(cybersecurity personnel), accounting (systems, personnel). Beforehand deposits paid for their own costs but now someone has to pay. I can guarantee banks are, as we speak, crunching the numbers. Transaction costs will rise(before you jump with the CS approval line, I'm talking about existing fees), ATM charges rising 100%--from around KES 30 to 60+ etc.Notice how personnel featured severally in the deposit-taking costs? Yep, lay-offs. Like I said someone has to pay.

I know a few SACCO's that are salivating at this prospect. Banks are not the only deposit taking institutions around. As for bank layoffs, they have been doing that already.

Are you saying SACCOs will replace banks? And even as they "eat" banks business they swell until they become...? Banks.

3. Fall of small banks, rise of big(ger) banks.
Big banks will be able to weather the initial credit freeze. Deep pockets mean easy to diversify. Small banks not so much. And its a catch 22 situation for them. Deny credit and not make money. Lend at low rates and be forced to play with volumes game to break even, and with it risk of default shoots. People will see these banks again going under with customer deposits, coz of defaults. So yes M&As will happen but it will be big swallowing small.

Consolidation in the Bank sector, ala Nigeria, is long overdue and if the bill accelerates it, well and good. I never bought the Governors argument about niche banking. It takes size and capital to take niche ideas to scale, which is what ultimately benefits the economy.

So above you welcome competition from SACCOs but here oligopolies are good. Really?


4. Fall of production
Forget the car/smartphone buying consumers for a sec. Businesses esp SMEs being locked out from credit access to fuel their expansion/survival. With that, loss of productivity, worsened by being in an election year. Businesses contract and at best, hiring freeze. More likely, further lay offs.

There is little worse that can happen to SME's than is already happening to them now. Think of it: what kind of business could you do that will give you enough returns to service a loan at 25%? As for the fall in consumption lending, I say it can't come soon enough.

SMEs were being weighed down, yes. But now they will be all out starved. In growth, slow>none>negative.


5. Our regulatory environment has been going haywire. We have already seen multinationals leaving, expect that to worsen. With net flight of forex comes weakening of KES. We're a net import country, weaker shilling means more expensive goods. In an environment of credit crunch and lay-offs mind you.

The flight of hot money, back to wherever it came from, is not an economic disaster. Do you remember the story of Mahathir Mohamend? He was once warned (by the World Bank) that that the Malaysian economy would collapse if he dared control the entry of speculative capital into Malaysia. The reverse in fact happened.

"Hot" money. Dismissive. What will replace it? Before you say local, keep in mind we are celebrating "cheap" money. Malaysia was at the time being swept up in a bigger crisis. The problem was not in their own fundamentals, it was blind sentiment towards an entire region. In our case, it's OUR fundamentals. Growing debt levels. And that we steal or waste BORROWED money. SGR for example, can you honestly say it will pay for its own enormous cost?


Here's a tip:
Remember unsecured loans will be/have been withdrawn among them "Emergency Loans". Wait for an increase in those calls of "nisaidie na ka-loan". Also a lot of people are paid(perhaps unknowingly) by credit facilities. Again salary delays...

Here is my counter tip: technological innovation. Expect to see a massive increase in the micro lending platforms going forward. With their low transaction costs, this is the one product where banks can continue to rake in the money even at 14%. As for risk, I know a guy at one of the CRB's who has been been pushing banks to move past their reliance on credit officers and hard collateral, in favor of credit rating scores. He has proven that a loan decision made by a credit officer is no more reliable than that made by using a score. He must be smiling as well. So, ultimately, should Wanjiku.

Read this paper: http://documents.worldba...but-a-blunt-instrument.

Even if you agree with the concept of capping rates, the devil is in the details and the surrounding policy environment matters. Here in Kenya, we have a poorly written law coupled with a level of government borrowing that essentially guarantees high interest rates. Hence the surprise. In other words, we just shot ourselves in the face. People tend to get surprised when you do that.