Banks Propose Change for Loan Interest Rates

In summary

• The Kenya Bankers Association (KBA) has petitioned the Central Bank of Kenya (CBK) to change the current system of determining interest rates of loans offered to Kenyans. KBA is seeking to have the loan interest rate tied to the interbank rate. 
• Housing Secretary Athman Said dismisses reports on the re-channeling of housing levy collections to ventures that benefit senior government officials. He explained that the collections had been ring-fenced, therefore, the money could not just be used on any project.
• The shilling strengthens after U.S. President Donald Trump pauses the imposition of reciprocal tariffs for 90 days. The gain by the shilling has been credited to the cooling off demand for US dollars by investors who were seeking to exit the Kenyan market.
• U.S. takes issue with the significant economic presence tax, which was introduced in the Tax Laws of December 2024. US Trade Representative notes that the policy is a barrier for investments in the service sector.

‍Banks Push for Loan Interest Rates to be Tied to Interbank Rate

Banks have petitioned the Central Bank of Kenya to change the current system of determining interest rates of loans offered to Kenyans. According to the Business Daily, the Kenya Bankers Association (KBA)  is seeking to have the loan interest rate tied to the interbank rate. 

The banks note that the move will see the cost of loans go down and enable more Kenyans to have access to the loan market. The association noted that the current framework had failed to ensure that the interest rates go down despite the push from stakeholders, including the government. In the new model, if approved, rates will be reviewed every two months. 

The banks also called for the regulator to approve piloting of the new model for 6 months as they evaluate the model. Notably, the new proposal is not new in the country and was used between July 2014 and September 2016. Currently, each bank has its own bench rate.

Also Read: Why Banks Are Avoiding Lending to Kenyans Despite High Interest Rates

‍Govt Responds Over Corruption in Housing Levy 

The government has maintained that every procurement and expenditure in the Affordable Housing Programme is above reproach. As reported by Citizen Digital, Housing Secretary at the Ministry of Lands, Housing and Urban Development, Athman Said, dismissed claims that the government was rechanneling the Housing Levy deductions to ventures that benefit senior government officials. 

He explained that the collections had been ring-fenced, therefore, the money could not just be used on any project or initiative apart from the development of houses. Additionally, the official denied allegations that the government had single-handedly awarded tenders of the programme to Devki Group. 

The official explained that the tenders are usually awarded by contractors assigned to the project based on the needs they have to specific projects. Meanwhile, Said revealed that the government would be handing over 1,000 affordable housing units to individuals by the end of the month.

Also Read: Why Employers Want Govt to Review Housing Levy Deductions

‍Shilling Makes Gains After Trump’s Pause on Tariff

The Shilling made gains on Wednesday and Thursday after President Donald Trump paused the implementation of the reciprocal tariffs for all countries except China. Reuters documented that the local currency traded at Ksh129.42 on Thursday evening in comparison with the Ksh129.67 recorded on Wednesday evening. 

The gain by the shilling has been credited to the cooling off demand for US dollars by some offshore companies who were seeking to exit the Kenyan market. 

Meanwhile, it was noted that traders were reluctant to predict the movement of the exchange in the coming weeks, given the unpredictability of the next move of the Trump administration. This was after the US President increased the tariffs on goods from China to 125%. The US accused China of disrespecting the US, hence the increase of tariff. 

‍US Takes Issue With Kenya’s Digital Tax

The U.S. government has highlighted the tax measures introduced in the Tax Laws in December 2024 to be a barrier to trade between Kenya and America. In a report by the office of the US Trade Representative, it was noted that Kenya currently has a ‘significant economic presence tax’ where a 3% tax rate is imposed on the gross revenues earned by non-residents whose revenue comes from the provision of services through a digital marketplace in Kenya.

The Business Daily reported that those who are exempted from this include non-residents who have an annual turnover of less than Ksh5 million.

In the report, the trade representative also raised concern over the 2019 Data Protection Act (DPA), which was cited to include unclear provisions governing the cross-border transfer of personal information. 

Additionally, the 2016 Private Security Regulation Act was cited to be restricting foreign participation in the private security sector. The Act requires at least 25% Kenyan ownership of private security firms.

Also Read: US Raises Red Flag Over Kenya's Fake Land Titles