Economist says high interest rates cause for worry as inflation persists in Malawi

A leading economic commentator in Malawi has asked the government to intervene in the country’s bank interest rate which he says is leaving most Malawians poorer than ever before.

Malawi Kwacha

Malawi Kwacha

Kachaje: High interest rates worrying

Kachaje: High interest rates worrying

Henry Kachaje, who heads the Economists Association of Malawi, told the state controlled MBC tv that there is need to have clear policies that would protect ordinary Malawians from banks that are only bent to make huge profits at the expense of poor Malawians.

“Almost all banks are making huge profits at the end of the year. The government cannot control interest rates but we need some intervention from the government,” he said.

He said it was ironic that the base lending rate, the rate at which banks use to give people who lend money to the banks is very low.

Kachaje said it was therefore important to have policies in place that would ensure that people who lend money to the banks also make profits..

He suggested banks don’t care much about the private sector because the government itself is the biggest customer as it borrows huge sums of money.

Kachaje, however, said government cannot fix the interest rates, saying doing so would excessively limit the profits and this would have negative effects on the economy as the economy would completely colllapse if banks close down.

Meanwhile, the country’s year-on- year inflation as measured by Consumer Price Index (CPI) is hovering at 23 per cent .

Inflation in the country is mainly driven by availability of food especially maize.

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23 thoughts on “Economist says high interest rates cause for worry as inflation persists in Malawi”

  1. Zidura Ntengo Undigwere says:

    The spread between what we pay when we borrow from the bank and what the banks pay us when we deposit our money is unjustified. And acceptable only in a country, of docile people, like ours. And the banks know this all too well.
    If I had, say, K10 million, in a term/business account, a year’s interest would not even be enough for my family to live on for two months.
    That’s highway robbery. Wonder why some people keep their money overseas? Therein lies part of the answer.

  2. Charombanthu says:

    There are certain parameters or determinants over which banks have no or little control except the RBM. Such high interest rates are largely, but not entirely, caused by the high RBM policy lending rate, the high regulatory liquidity reserve ratio (LRR), the high supervisory fees, the Treasury Bill Rates as well as the government bond rates, all of which are factored into the calculation of individual banks’ base lending rates. The only factors over which banks could have control over are such items as operating costs, the cost of funds they have on their balance sheets, the return on shareholders equity demanded of them by the owners of the institutions and obviously the cost of the non-performing loans. Unfortunately, most of these have a knock-on effect which most of us do not realize. For instance, the loan repayment culture in Malawi is one of the worst which in turn has an effect on the rates at which banks charge on their money that they lend to people. Whilst I agree with Henry in general, I would also look at these other factors and not just focusing on the profits made by these banks as the solution to the problem.

    1. wa ku Mitchesi kujaaaaa!!!! says:

      “…parameters or determinants…”, chani chani, inu apa.
      People are asking for fairness, and are tired of kuponderezedwa ngati nyerere (being thwarted every which way financially by the oligarchs, these banks). Are we the worst offenders, in the world, when it comes to paying back the loans?
      Perhaps the banks should do a better job of screening the people applying for the loans, in the first place.

  3. Bololo says:

    (9) Kalunga Kaluja. RBM has a section under bank supervision that look into that. Write to them or go there for more information. A clue though make sure you didn’t sign for that arrangement otherwise the contractual agreement would be legally binding in absence of national laws against it.

  4. Mapwevupwevu says:

    Stupid Malawians you are not commenting on this insightful article! Koma akanati wina wamenyedwa kuzinziri ndiye 482 comments!

    Mxiiii!

  5. mbuyuni says:

    Ife have resorted bank ya mmudzi where our interest rate is at 20% and we share the interets at the end of the year.I agree to someone suggesting giving this country to a Mangochi business man to run this country, may be due to business success some guys from this district are registering.

  6. Edward says:

    I agree with you Henry Kachaje. I feel the government can not deliberately intervene because it has interest in the huge profits that banks are making. Huge profits for banks means huge corporate tax that these banks will remit to MRA, government in this case.

  7. drakes says:

    Banks in Malawi are dirty I would urge Malawian not to save in Banks no apology. Would rather save with Unit Trusts,buy shares get your money @ stock xchange to grow it. Those who are seriously looking at long term savings check with Old Mutual they will advise you on which product you can save your money with.Dont waste your time saving with all banks in Malawi they are useless.

  8. Tionane says:

    I suggest a regulation that states you cannot charge interest more that twice your offer, so if the Banks are offering 12% to depositors, then they should not charge more than 24% to borrowers.

  9. hastings says:

    thanks Kachaje, the banks are good at promoting fixed deposits, Call accounts etc to their costomers, but the Money they gain out of that is too small as compared to the interest a fellow poor malawian pay back where get the loan from the same bank With smilar amount of Money. i will give an example on that one, if you borrow K2m from the bank, the interest is around 40%, but if you open a cll account or fixed account With the same amount of Money to the same bank, you get an interest of 7-12%, is this fair? considering that its the same K2M that some one will get from the bank at the interest of 40%. thefty

  10. koma kumaneko says:

    Kachanje mungovutika kunena, which govt can take good advices? Malawians will cry, die and burried. What you will get from the govt as a reply is rude response from their spokespersons. Zisiyeni atiombole ndi mulungu. I can see fuel shortage is imminent.

  11. Kavuluvulu says:

    Good point Henry.

  12. Yusuf says:

    Commercial banks in Malawi can survive a significant cut in their lending rate. Currently they make supernormal (almost criminal) profits. They wouldnt close up if RBM decided to intervene for a rate cut. The reason RBM doent intervene is because they are too focused on inflation targeting and they try to achieve low inflation with these high rate.

    I would say RBM should not only focus on inflation, but also on economic growth. Bring sanity to interest rate spreads, make borrowing more affordable so that people can invest and grow the economy

  13. chimboro says:

    Manyumba ndi magalimoto akutengedwa.Government should intervene

  14. Mr. Kachaje, it is true. Even to Micro-Finance companies they charge more to add on the interest agreed. For Example myself I was granted a loan of K70,000.00 (Capital) K40,000 (Interest) to me is very high, On top of that they deducted K56,000.00 saying (management and administration) total K166,000.00. Now my claim is if it processing fee it could be deducted the time I was granted the loan and not K56,000 it could be less than K10,000.00. I wish to inform microfinance companies that they are putting Malawians in poor situation as Mr. Kachanje observed. The purpose of microfinance companies is to assist reduce poverty to the officers who go to get the loans. I am looking for assistance how I can be returned this K56,000.00. Mr. Kachaje thanks for the observation.

  15. Mbiri says:

    I think one of the major reasons this country is and remains extremely poor is the dominance of textbook economists in Government. They believe in some frameworks even they don’t understand. Look at the MGDS and Vision 2020, what do we have to show for them? Why not just have a simple development plan, even a one pager that everyone understands. Look at South Sudan, they just select priority areas and concentrate on them. They are a new country koma atidutsa while we fumble with idiocy. How difficult is it for the whole GOVERNMENT to direct banks to reduce rates? The president should also fire his Agriculture minister forthwith. The lunatic believes tobacco still has a future globally when even the tobacco companies in Kanengo are steadily sinking. Ask them if you think this is a joke. Mediocrity at its best!!! Nde mwina bolanso to ask a local businessman from Somewhere in Mangochi for instance, to run this country as his enterprise…at least he will be profit-oriented. Now to you Kachaje, what are you doing about your many brilliant ideas after you report them to the journos?

  16. me says:

    This article should have mentioned what the interest rates are visa v the lending rate. For somebody who does not know the Malawi situation, that info could give meaning to the story.

  17. matako a pusi says:

    Zimayambira ku rbm seem they charge banks higher rates and the banks pass on to the people thats why wotking conditions at rbm are very better than other govt companies

  18. matako a pusi says:

    Kachanje akulemba za nzeru masiku ano remember lessons from bushiri marketing article? Indeed banks are making us poorer the interest rates are very high and no one cares. Thats why people are failing to pay and every day vanks are taking awa and selling our houses and cars used ad collateral with impunity. And there sre these othrr group of lending banks like select greenwing etc they charge over 100% interest you borrow 100000 kwcha you pay back over 200000 kwacha. No one cares to monitor even the RBM that s why the banks are making obscene profits

  19. captain says:

    This is long overdue,a poor country like Malawi interest rate is supposed to be less than 20%

  20. Sports Fan says:

    Njoka samaweta. Unless Chuka is fired nothing will work at RBM.

  21. Zachisoni says:

    Things have to change, banks for a long time have been doing this.

  22. Form four economist says:

    If Banks are making hefty profit by lending to individuals, it means the Reserve bank of Malawi interest rate-rate at which RBM charges interest to banks is too low. Goverment can interven, restrict liquidity or increase rate for banks that charge high base lending rates. Through the RBM governer goverment should take action.

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