On 28th July 2016 the central bank issued a statement on the adverse consequences of capping rates which included consequences like “inefficiencies in the credit market, credit rationing, the promotion of informal lending and undermining the effectiveness of monetary policy.” A few days later, after the rate caps became law, the bank had “nothing to say on the matter.”
Millions of closed loan accounts, the rise of tala, branch, okash and whoever else you can think of later, President freedom has had enough and is calling on the law to be repealed. This move, that came into play as the president refused to assent the 2019 Finance Bill, has led to a rallying bank stocks on the NSE as seven of the 10 banks listed on the NSE gained with investors showing more willingness to invest in the right environment.
But this is not just about whether investors will put their money in banks or not. The interest rate cap meant that banks have had a hard time pricing high risk loans with many of the banks actually choosing not to lend money to them. This means that rate caps have effectively cut off lending to the private sector, something that Anzetse Were attributes to our Government’s “debt appetite” (which is something we are well aware off). As a result, the people who were touted to be helped the most by this rate cap are left turning to other sources of credit with interests as high as 35% in some cases. This, of course, is bad for everyone, because no one even knows where that money is going. One could even argue that the lower end of the market is paying a separate tax to access credit – something that the rate cap was going to bring a stop to.
Of course, though, if you make any market section price their profit at a certain amount, the only people who will buy it are those who can buy it at a scale for that price point to make sense. Especially when it comes to money, which loses value faster than it can be paid back in most cases.
“Interior CS Fred Matiang’i has taken particularly bullish delight in this respect. When he is not terrorizing teachers, lambasting non-Huduma-registered citizens or preaching doom and exile to alien traders, he is in a conference flexing regulatory muscle on tax-defaulting betting companies. If you have caught one of his many tirades then, like me, you have probably thought one of either two things: (1) “Bah, we’ve arrived yet again at that precarious intersection of capitalism, the consumer and the state.” Or (2) “I’m not sure I like your tone, public servant.”
The government’s contempt for any “outside” reasoning has, perhaps, been the key marker of being led by Jubilee. Whether we’re hearing this in their “blame the citizen” tone, or we’re seeing it in several projects undertaken against all advise. A debt ridden SGR that leads to nowhere and dams that were never built come to mind as infrastructure projects that swallowed a lot of money even when all forecasts were calling them unfeasible. The CBC was forced down teacher’s throats despite their cries of unpreparedeness until the then CS for Education, Amina Mohamed, had to pull the programme for teacher training to happen at length. And we haven’t even talked about how we were all threatened into registering for the Huduma Namba – something that is now being unraveled before the courts.
Perhaps rather on focusing on every single time the government makes a less-than-ideal decision to get drawn into the cycle of rage, this is the larger pattern we should be working on getting through to the government. That there are professionals who know what they are doing out there. And that maybe, just maybe, paying a little attention would do us all a lot of good.