Kenya's commercial banks are on the spot for providing conflicting information on the number of loans given to the private sector in a bid to pour cold water on the fixed interest rate regime.
This comes as the debate over whether controlling interest rate will free more money for investment shows no signs of cooling off.
The EastAfrican has established that loans to the private sector have been increasing since September 2016, when the law capping interest rates came into force.
This is contrary to reports by the Central Bank and the Kenya Bankers Association (KBA) that the private sector has been deprived of credit since banks are not willing to lend to riskier borrowers at a controlled rate.
Data collected by the CBK from all lenders shows that credit to private households, real estate, building and construction, finance and insurance, and consumer durables has increased, while loans to a few sectors such as agriculture and manufacturing have remained almost flat.
For instance, the number of loans that banks extended to households, real estate and the building and construction sectors increased by six per cent, four per cent and three per cent respectively between September 2016 and February 2017.
Interestingly, private households that were branded high risk after the passage of the interest rate law received the lion's share of credit in February 2017, at $4 billion.
The sector was followed by trade ($3.76 billion), real estate ($3.42 billion), manufacturing ($2.75 billion), transport and communications ($1.95 billion) and consumer durables ($1.69 billion).
Compared with the same period last year (February 2016), all the sectors save agriculture, manufacturing, and mining and quarrying posted growth in the number of loans received from banks.
Manufacturing, trade, real estate and households account for 60 per cent of the total credit in the banking sector.
Hands are tied
The fixing of lending rates at four percentage points above the prevailing central bank rate came after banks failed to heed to pressure from the government to lower their lending rates. The law has since been criticised by banks, the CBK, Treasury and the IMF.
Attorney General Githu Muigai said the government's hands are tied and it cannot effect any amendments to the law since it was brought into being through a private member's Bill in parliament.
Although data shows that banks have been lending even with the controlled interest rate, the lenders have maintained that the law is unhealthy to the economy and that its enforcement has led to the decline in credit to the private sector.
Last week, CBK Governor Patrick Njoroge said that banks have stopped lending to businesses and instead prefer giving short term-loans of between one and five years to corporates.
Dr Njoroge also said that the controlled interest rate has impacted the economy, financial inclusion, banks' operation efficiency and financial intermediation.
"Lending to businesses has fallen compared with the corporates. There has been tightening of credit standards. We are becoming clear about what the effects of interest rate caps are. There will be an impact on growth, but we can't give you the estimates because we are still not clear on the numbers," said Dr Njoroge.
He said lending to the micro, small and medium enterprises fell by 5.7 per cent between August 2016 and April 2017, but that small banks had increased the number of the loans to the sector.
According to KBA, the number of loan approvals declined after the law came into force with banks shunning riskier borrowers who do not have collateral security.
"The credit growth has slowed down, impacting on Kenya's banking industry and the broad economy. When the law came into effect the number of loans approved came down," said Habil Olaka, the chief executive of KBA.
"Credit approvals have slowed down and disbursement is concentrated in four sectors -- households, trade, manufacturing, and building and construction," he added.
According to the KBA, banks have ignored lending to new borrowers whose risk profiles cannot be covered by the controlled lending rate, while some borrowers will not apply for new loans owing to worries about the interest.
"If you look at the January, August and December statistics you can see clearly that the growth of credit is slowing down," said Mr Olaka.
However, data from the CBK shows that the number of loans approvals increased by 35.7 per cent between August 2016 and April 2017, although the value of the loans declined by 16.3 per cent.