Interest rate control law and accessibility of credit by MSMEs in Kenya: towards alternative approaches

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Interest rate control law and accessibility of credit by MSMEs in Kenya - towards alternative approaches..pdf(1.92 MB)
Date
2023
Authors
Wamaitha, S. N.
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Strathmore University
Abstract
Kenya has been through a complete cycle of imposing and eliminating interest rate caps when it comes to the lending practices of banks. This has born both positive and negative consequences on lenders and borrowers in equal measure. Even so, the recent elimination of interest rate caps has left Micro, Small and Medium Enterprises (MSMEs) affected the most. With a view to establishing a different approach to interest rate control that takes to account the interests of MSMEs, this study investigates the implications associated with capping laws on the interests of MSMEs by way of doctrinal legal research. In its findings, it identifies alternatives and best practices that can be implemented to limit the high costs of borrowing in the even interest rate control becomes an inevitable regulatory mechanism. This is based on the postulation that interest rate control law can be iterated towards enhancing financial inclusion of MSMEs without registering negative effects on their interests as borrowers. The study finds that despite being aimed at financial inclusion of low-income consumers of credit such as MSMEs, interest rate control also bears negative implications such as adverse selection and financial exclusion of this group. Hence, the study finds that the Kenyan legal framework can be iterated pursuant to the pillars of the social contract theory to exercise interest rate control with caution through consumer protection and through monetary policy tools used by the Central Bank to influence liquidity in the banking sector. Key words: interest rate control, MSMEs, financial inclusion, cost of borrowing
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Wamaitha, S. N. (2023). Interest rate control law and accessibility of credit by MSMEs in Kenya: Towards alternative approaches [Strathmore University]. http://hdl.handle.net/11071/13432
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http://hdl.handle.net/11071/13432
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LLM Theses and Dissertations (2023)