In a rush to beat the Central Bank of Kenya (CBK) deadline, Equity Bank has today – September 14, 2016 – adjusted all interest rates on loans to 14.5% p.a being the current base rate set and published by the CBK as per the Banking Circular No 4 of 2016 of September 13, 2016 of 10.5% p.a + 4%. At the same time, interest on deposits held in local currency interest earning accounts will earn interest at a minimum of 7.35% being 70% of the current base rate as set by CBK at 10.5% p.a.
At a media briefing, Equity Group CEO James Mwangi said: “As a law abiding institution, Equity Bank has adopted the base rate as set and published by CBK currently at 10.5% and marking up with a 4% cap as provided for by the Law to arrive at 14.5%. The new interest rate will be applied on a reducing balance basis. It will apply to all local currency new credit facilities and existing ones whose performance is on schedule. We invite our customers to visit their respective branches in case they require more information or clarification on their credit facilities.”
The Banking (Amendment) Act 2016 section 33(1) (a) says “ the maximum interest rate chargeable for a credit facility in Kenya at no more than four percent, the base rate set and published by the Central Bank of Kenya….”
Equity Bank has interpreted “credit facility” to mean any form of financial accommodation extended to a customer through institutions licensed by the Central Bank under the Banking Act irrespective of the various channels. The desire to provide ceilings is a clearly discernible intent of the law as evidenced by the Memorandum of Objects and Reasons to The Banking Act (Amendment) Bill, 2015. The Act further prohibits any person from entering into an agreement/arrangement to borrow or lend directly or indirectly at an interest not accordance thereof.
In this regard, Equity Bank has interpreted this to include all credit facilities extended to customers by such institutions. This includes loans through mobile phones or through other third party platforms or collaborations with Mobile Network Operators (MNOs) like Equitel loans , credit card facilities as well as micro finance loans. The Act in section 33(B) (2) further says “A person shall not enter into an agreement to borrow or lend directly or indirectly at an interest rate in excess of that prescribed by law”. The fact that this prohibition extends to all categories of persons including lenders and borrowers clearly makes out a case for wide interpretation.
Dr. Mwangi said, “Our suite of deposit accounts will now attract a minimum interest rate of 7.35% p.a. We invite our customers to make full use of these products to build their savings and investments. Our Eazzy account is designed to make banking easy. It has no minimum operating balance, no ledger fees, no maintenance fee, no monthly charges and no cash deposit or cheque handling charges. Our Junior Member Account, Teen Member Account and Achievers Student Account are easy to open, have no ledger fees and have an embedded financial education benefit. Our Jijenge Account enables our customers to save for specific investment goals. It is easy to open and allows the customer to have a discipline of saving. A customer can access emergency loans of up to 90% of their savings. Our School Fees Account is easy to open and has no account maintenance balance or monthly charges, has four free withdrawals in a year, free internal standing orders and three free bankers’ cheques in a year for school fees payment. With these products now attracting premium interest at a minimum of 7.35% p.a, it gives Kenyans the opportunity to build savings.”
Equity Bank currently has over 10 million customers served via various delivery channels such as agency banking and mobile banking (Eazzy 24/7 and Equitel) to broaden access and deepen inclusion.