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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26 thoughts on “Reduce interest rates to boost Malawi economy”

  1. Lorna says:

    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?

  2. Malawian says:

    Bambo bwampini

  3. Angoni Apaphata Ife says:

    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.

  4. agnes wanzeru says:

    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.

  5. mtichimwitsa says:

    Killing the people.

  6. Jelbin mk says:

    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.

  7. Tiko says:

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

  8. Tiko says:

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

  9. Cashgate1 says:

    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.

  10. mangoni says:

    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

  11. chatonda says:

    INn Canada, the lending rate is 1% and 2 % is the highest while in mALAWI, IT IS 26%. HOW CAN ONE MAKE ANY BUSIMNESS AND THEN MAKE PROFITS? tHIS IS SCARING INVESTORS BOTH LOCAL AND INTERNATIONAL BECAUSE OF STUPID LENDING RATES WHICH ARE STRANGE IN THE WORLD. please change of you want people to invest. tHAT IS WHY Mulli is failing to pay back his loan partly because of such high interest rates. Let us learn to do things better and not getting rich through stealing like this.

  12. zaluma says:

    Do not be surprise Malawi is the worst prison one can go. I would be better to spend the rest of your life at GUantamo kuposa kukhala mu Nyasaland dziko loyendetsedwa ndi ISIL and Taliban, mbala zoopsya

  13. The Truthful One from the West says:

    I very much doubt that interest rates can been reduced because of excessive govt borrowing which pours a lot of money into the economy. The Reserve Bank then uses the high interest rate to dampen spending to stem inflation. Govt spends more than its income and therefore borrows a lot.

  14. social investor says:

    We know this already. We live it. So someone give me the hard numbers please, to visualise how high. Highest in the world. Ok. Any comparative figures? What isthe recommended rate that gives win-win situation for the banker and the bborrower? Just a few numbers, please.

  15. Bola kwimuka. says:

    Malawi equals ANIMAL FARM!

  16. The real Ujeni says:

    Most investment interest rates earnings are around 1% but withholding tax is a whooping 20%. Why bother to save, this leads to too many people not saving.

  17. Angoni Apaphata Ife says:

    Interest rates are a result or rather reflection of the economy. If it was just a matter of interest rates why not then just put zero interest? Our economy has been agricultural based for a long time. Give the people market. Oranges. Mangoes. Tangerines. Enter mini trade agreements with north African countries for starters. That is where govt and admarc come in. These simple things we see rotting in our streets nd I zimene analemera Nazi ma China. Tomato uhh nd I golide

  18. Mbewa ndi nchira says:

    Am doubting if our president can take this advice.He was democratically elected,so he does need anybody to advise him. After all he is a professor.

    But I am 100% sure that the minister of finance will tell me that the president will use constitutional powers to reduce inflation and win investors without touching interest rates.

  19. Biggie says:

    Koma boma ili abale, chilichonse chokwera kupatula salary basi? Eishi…zoopsa kwabasi

  20. Mzimayi Wachtukuko says:

    Please reduce the lending rate so that most of us can access loans and implement development projects which are failing because of lack of capital

  21. chuwa chimo says:

    reduce the intrest rate, even though it may cause inflation, but some times a reasonable inflation is good for economic growth.

  22. tombolombo says:

    We will remain poor till the second coming of Christ due to these visionless political leaders.

  23. freedom says:

    Government should subside taxes on the local currency facilities.banks should go out and sale loan packages to clubs and stable business community country wide without fever

  24. Achitauni says:

    I hear that Chuka has been bribed by banks to keep interests at that level. I hear its FMB akupanga zimenezi wachimwenye eish.

  25. chimboro says:

    Cash gate makes people lose their property

  26. tsetsefly says:

    The negative effects of high interest rates is no longer sky rocket science. It is a common knowledge. Its still surprizing that RBM has not listened to local commentators about this simple concept. Lowering interests rates can have challenges on a short term but the nation stands to benefit on a long term.

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