Kenya to repeal rate cap, introduce 'Robin Hood' tax
* Rate cap protested by banking community
* Cap has slowed bank lending to small businesses
* Budget deficit reduced for first time in years
(Adds details on Kenya budget, Uganda and Tanzania)
By Duncan Miriri
NAIROBI, June 14 (Reuters) - Kenya's Finance Minister Henry
Rotich on Thursday said he would propose repealing a cap on
commercial lending rates, a move cheered by bankers who had said
the ceiling had hurt credit growth and access.
The surprise move was announced by Rotich as he presented a
budget for the 2018/19 (July-June) fiscal year that included a
new tax on financial transactions.
Private sector credit growth slowed sharply after lawmakers
limited the amount of interest commercial banks can charge
customers at four percentage points above the central bank rate.
The International Monetary Fund has demanded the cap be
repealed as a condition for Kenya to access its balance of
"I propose to amend the Banking Amendment Act 2016 by
repealing section 33b of the said act," he said, referring to
the section of the law that sets the cap on interest rates for
"This is to enable banks and lenders to provide more credit,
especially to the borrowers they consider riskier," he said.
The government introduced the cap because it said lenders
had failed to pass on the benefits of growth in the industry to
the broader economy by lowering their rates.
However, the cap has been blamed for the slowdown in
lending, especially to small and medium enterprises as banks
shied away from lending to borrowers considered risky.
"Anything that moves away from the current framework we have
of the interest rate cap is a positive move, it's definitely a
welcome development," said Jibran Qureishi, regional economist
for East Africa at Stanbic bank.
The government faces a challenge pushing through the repeal
as lawmakers who strongly backed the cap still oppose its
"It's a popular bill despite the detrimental impact... you
could see there was clearly some disillusioned members in the
house, it was very notable, it's not going to be a walk in the
park," Qureishi said.
"ROBIN HOOD TAX"
The minister targeted a budget deficit of 5.7 percent of GDP
for the financial year starting next month, less than the 7.2
percent budgeted for 2017/18.
He projected tax revenues to rise by 17.5 percent to 1.9
trillion Kenyan shillings ($18.81 billion), equivalent to 20
percent of GDP.
He read out a lengthy list of proposed tax measures, which
he said were designed to generate an extra 27.5 billion
shillings in revenue during the period.
"I propose to introduce a Robin Hood tax of 0.05 percent of
any amount of 500,000 shillings or more transferred through
banks or other financial institutions," he said.
The government of the East African nation has been
criticized in recent years, including by the International
Monetary Fund, for ramping up borrowing for infrastructure
investments, including a new railway completed last year.
It was the first budget deficit reduction in years.
Rotich said he was withdrawing an earlier proposal to
introduce a higher tax bracket of 35 percent for individuals
earning more than 750,000 Kenyan shillings per month, after
members of the public raised concerns.
The current rate is 30 percent for the highest earners.
In neighbouring Tanzania and Uganda, where the finance
ministers also presented their budget proposals on Thursday,
growth was also set to rise, they said, with Tanzania posting
the highest projection at 7.2 percent.
The governments also proposed significant borrowing to fund
their spending, with Rwanda proposing to borrow externally.
($1 = 101.0000 Kenyan shillings)
(Additional reporting by Kevin Mwanza, John Ndiso Elias
Biryabarema in Kampala and Fumbuka Ng'wanakilala in Dar es
Editing by Maggie Fick and Jon Boyle)
First Published: 2018-06-14 15:34:03
Updated 2018-06-14 17:39:06
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