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In 2016, the government of Kenya introduced “Interest rate capping” in Kenya. Discuss this concept and...

In 2016, the government of Kenya introduced “Interest rate capping” in Kenya.

Discuss this concept and the implications it had on various sectors of the economy.

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Answer #1

The bank set a cap which charges 4% interest is equal to the base rate set by the Central Bank Of Kenya.It is intended to reduce the high interest rate for small enterprises and working people.This cap actually reduce the credit to the private sector.It reduce credit availability and increase cost for low income borrowers.This cap makes budgeting easier.

Interest rate capping rises the average loan size.So it reduce the loan accounts reflects lower access to small borrowers and larget loan to the established firms.This capping increases the share of commercial bank holding of government securities and decreases the share of credit to the private sector.

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