Reduce interest rates to boost Malawi economy

A London-based financial trainer and investment adviser Paul Richards recently expressed shock over Malawi’s bank lending rates, saying they are prohibitive for individual borrowers and investors. He went on to say that the lending rates in Malawi remain among the highest in the world and that investors cannot afford to borrow at such high rates to expand their businesses.

Richards emphasised that high lending rates are not healthy for a developing economy as they tend to discourage people from borrowing and saving, let alone acquire shares on the stock market. His sentiments are shared by many Malawians who have complained about the high interest rates.

During the investment forum in Lilongwe last Monday, Malawi Confederation of Chamber of Commerce and Industry (MCCCI) chief executive officer Chancellor Kaferapanjira also raised the issue. He told delegates that high cost of financing is still one of the three challenges facing the business community.

Actually, the high cost of borrowing is not only affecting the business community, but all Malawians in general.  For a long time, Malawians have endured high interest rates. Despite the complaints, government through the Reserve Bank of Malawi (RBM) and the commercial banks have not significantly reduced the interest rates to make any borrowing meaningful. Now that outsiders are observing that our interest rates are crazy, our authorities will start doing something about it. Richards observed: “government and commercial banks must seriously consider reducing their lending rates so that investors can make profits and expand their companies.”

While high interest rates are a sign of high inflation, and the Reserve Bank increases bank rate as monetary tool to discourage borrowing. However, the government and commercial banks have been short-changing people because they have kept interest rates high even when the inflation has gone done.

The impression that one gets is that banks and government just want to keep interest rates high for reasons that one cannot understand. And for banks, they are making a “kill” because they pay peanuts on depositors’ investment or savings accounts.

For a country like Malawi which suffers from low production, high interest rates are indeed detrimental to the economy. Ironically, high interest also fuel inflation. We have seen how people who have borrowed money from financial institutions to construct houses are now losing their property because they are not able to service the loans. Small scale industries are the worst hit because they are unable to access loans through commercial banks because many of them do not qualify to access loans in the first place.

Certainly, government must consider reducing interest rates. They have been too high for too long. Reserve Bank should not overuse the interest rate as a means to contain inflation. Inflation naturally goes down when the items are in abundance. It is also common knowledge that when the cost of borrowing is cheap, a lot of people access loans and may use it for consumption. And from the monetary point of view, this increases spending and this fuels inflation. However, this should not be the issue.

Government and commercial banks should reduce interest rates to boost the economy. Let the business community and individuals access loans cheaply for productive purposes.

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Lorna
Guest

What about the interest rates UK micro finance charities charge? They get given the money by public or DFID but charge 80%+ interest rate to women and we accept this? Who really benefits from those loans then?

Malawian
Guest

Bambo bwampini

Angoni Apaphata Ife
Guest

Govt finance is based on tax and borrowing which equals total expenditure. If the borrowing rate is high especially considering that we borrow from political buddies who give us loans on deliberately high rates how can the banks have low rates? It all comes down to proper policies and good governance.

agnes wanzeru
Guest

No wonder it is only the banking sector that is growing while the rest are dwindling. Banking is stealing people’s money. A proffessor konzani China chadziko.

mtichimwitsa
Guest

Killing the people.

Jelbin mk
Guest

If it was another government these calls could be heard but with DPP led government being headed by Peter Muntharika and Goodall Gondwe as finance minister forget it these fools are rigged,deaf and arrogant they listen to no one but Muli and Ben Phiri just recall how they ignored the public outcry on the msb sale. They are the most arrogant public officials I have ever seen.

Tiko
Guest

Angatsitse bwanji pamene ali ndi mashares mu MSB. Palibe politician amene ali determined to solve problems of local Malawian people. Utsogoleri pano ndi mpamba.

Tiko
Guest

Angatsitse bwanji pane ali ndi mashares mu MSB. Palibe politician amene ali determined to solve problems of local Malawian people. Utsogoleri pano ndi mpamba.

Cashgate1
Guest

Wondering why we are not developing? one factor pointed out. People have been squeezed out of business due to high cost of servicing loans and loh, houses have been snatched, and cars resold by banks or in business terms, properties have been grabbed by banks. Unfortunately our government economists are using an old version, they need to get updated. Otherwise tizingogulitsa Mabank because our late brothers borrowed and have failed to repay the money and because they have powers to transfer their burden to common man, then surely we take it.

mangoni
Guest

We need more production, the problem is most lenders in Malawi lacks the ability to pay back on time. This in the books shows that the banks are on a high profit margin with a limited cash-flow. I believe Malawi has a high potential for business, we have for sure made other nations rich
More concentration on small businesses will help us. Before reducing the rates, we need more education to the public sector on repaying the loans on time, however low rates and more access will help our striving economy

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