Law Capping Interest Rates is Unconstitutional, High Court Rules

March 15, 2019

The section of the Banking Act that introduced capping of interest rates is unconstitutional, a high court in Nairobi has ruled.

A three-judge bench comprising of Judges Francis Tuiyot, Jackline Kamau and Rachael Ngetich made the ruling on Thursday following a petition filed by a Nairobi resident Boniface Oduor in 2016.

The petitioner moved to Court to challenge the Banking (Amendment) Act 2016 which capped interest rates at four percent above the Central Bank Rate (CBR), which currently stands at 9%.

“The court has found provisions of sections 33 B (1) and (2) of the Banking Act to be vague, imprecise, ambiguous and indefinite… The court therefore declares the sections 33B(1) and (2) of the Banking Act to be null and void,” ruled the court.

However, the Commercial and Admiralty Division court suspended the enforcement of the ruling for 12 months to give lawmakers time to amend the law.

“Although the responsibility of the Central Bank of Kenya in setting and publishing the Central Bank Rate under Section 36 of the Central Bank Act is undoubtedly a function of formulating monetary policy, the petitioner (Mr Boniface Oduor) has not demonstrated to the satisfaction of the court that the provisions of Section 33B, relating to interest rate capping, falls within the purview of monetary policy.”

The court statement further stated: “For that reason, the court cannot fault the National Assembly in legislating a provision on interest rate ceiling. In arriving at the decision, the court gives deference to the principle of the presumption of constitutionality of legislation.”

“Central bank of Kenya will continue to provide measures of clarity to the impugned provisions,” added the three bench court.

The Central Bank on Thursday indicated that it was reviewing the ruling before issuing a comprehensive statement.

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