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Interest rates cap declared unconstitutional

In the High court petition of Boniface Oduor v Attorney General and 4 others Petition 413 of 2016, Section 33B (1) and (2) that set capping on interest rates were declared unconstitutional.

The petition related to the constitutionality of the interest rate capping and auxiliary provisions of section 33B of the Banking Act. A month prior to the hearing of the petition, there was an amendment to sections 31A and 33B of the Act. Those changes were through section 64 of the Finance Act No 10 of 2018 which commenced on 1st October 2018.


The petitioner claimed capping of the interest rate charged by banks and financial institutions deprived Central Bank of Kenya (CBK) of its exclusive constitutional (Article 231) mandate to solely formulate and implement monetary policy. The petitioner contended that the impugned provisions discriminated against banks and financial institutions as no similar restriction on interest rates was placed on mortgage finance institutions, micro finance banks, insurance companies and those dealing with Islamic banking.

Section 54 of the Banking Act is discriminatory

The Banking Act 2016 defines a bank as a company which carries on, or proposes to carry on, banking business in Kenya but does not include the Central Bank. Banking business is defined as accepting money from the public on deposit repayable on demand, at the end of a fixed period or on notice. The Act expands this definition to include accepting money on current accounts from members of the public and using the money deposited in the current account for lending or investment. As per this definition, Mortgage Finance institutions, Micro-Finance banks and Islamic banks can be considered banking institutions due to the nature of their banking business.

The court was sound in its reasoning through consideration of legislative intent and by holding that the reason for exemption of institutions under section 54 of the Banking Act was these organizations were established to cater for a specific group. However, if these institutions provide banking services, then they should be bound by section 33 B (1) of the Banking Act. 

Section 33 B (1) of the Banking Act is imprecise, vague and ambiguous.

Section 33(B) (1) (a) of the Act was also vague as to the period and manner the four (4%) per cent interest was applicable. It did not specify whether it was to be charged per day, per month or per annum. In any event, any valid law had to be self-explanatory. It had to and should not be qualified by explanations to be found outside of the statute. The court referred to the fact that CBK issued Circular No 4 of 2016 on September 13, 2016 to attempt to clarify on the ambiguity issues and this was evidence of the ambiguity of the impugned section. 

Section 33B lacked the minimum degree of certainty required of legislation that created criminal offences. Section 33 B (3) provides for a penalty for CEO’s who contravene the provisions of section 33. The court noted that the Section 33B (3) did not refer to a customer since both parties would be in contravention of the law if such a transaction occurred. Reference was made to Section 49 which provided a general penalty that referred to ‘anyone’ who contravenes a provision of the Act and was thus not discriminatory. The court adopted the rule of lenity which requires the court to interpret the ambiguity of any penal provision in a manner that is most favorable to an accused party.


There was no option but for the provision to be struck out for being vague, ambiguous and being in contravention to article 27 (Equality and freedom from discrimination), 29 (Freedom and security of the person) and Article 50 (Fair hearing) of the Constitution. The court emphasized  that an individual cannot be punished by a law that is uncertain.

Although the amendments did not infringe on the CBK’s constitutional mandate for setting monetary policy. Section 33 was struck out on a technicality. The legislative intention of setting the interest caps was clear, to maintain price stability, however the penal amendments violated fundamental rights in the constitution and due to the supremacy of the constitution, the amendments had to be declared void.



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