Interest Rate Cap Bill stirs mixed reactions on social media

The controversial Interest Rate Capping Bill, which was shot down by the government side of Parliament and was referred back to Parliamentary committee for more scrutiny, has stirred hot mixed reactions on social media in its aftermath.

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The Bill was sponsored  by main opposition Malawi Congress Party (MCP) MP for Dowa West Alexander Kusamba Dzonzi as private members motion but prior to that it was riddled with controversy within the august House that eventually saw MCP and People’s Party (PP) boycotting the afternoon session in protest over suspected tactics by the ruling Democratic Progressive Party (DPP) aimed at derailing the Bill.

Tactics to derail the tabling of the Bill started emerging when the social media went awash with reports that Bankers Association of Malawi (BAM) invited some MPs to a business breakfast in Salima where they were allegedly enticed with over K800,000 each as fuel re-I’m bursement in a bid that the MPs should shoot down discussion of the Bill.

It was also reported that Kusamba Dzonzi was also ‘handsomely paid by unnamed sources to move the motion’, an allegation the legistrator vehemently denied.

And on Thursday morning, a WhatsApp message, which also went viral on social media meant for the MP’s eyes only said in tabling the Bill, the opposition was trying to justify that they are concerned with the welfare of rural masses at heart but in essence they are just trying to gain a political mileage by bringing in controversial private members bills. 

And the message continued to ask MPs to boycott the day’s sitting in order for it to be shot down. But come afternoon, as Kusamba Dzonzi was set to move the motion, DPP’s Blantyre City Central MP, Themba Mkandawire stood on point of order and asked for Standing Orders to be waived and have government Ministers answer questions from legislators.

Yet Thursdays are reserved for private members motion but DPP MPs unanimously said it should be government business to answer questions first, effectively blocking Kusamba Dzonzi  from moving the motion.

When the Speaker ordered for division vote the government side have won and in protest MCP legislators trooped out of the house followed by those for PP.

The Bill targets setting up a ceiling of interest rates charged by banks to a maximum of 5% above the Policy Rate set by the Reserve Bank, and also seeks to regulate and regularize setting up a ceiling of total interest charged to customers by banks to not exceed the capital borrowed.

It also aims to set up a floor of interest paid to depositors to the higher of 2% above ruling inflation rates or 5% below the lending rate. 

And this is reported to have made banks go into panic mode claiming it will kill their industry and crash the entire economy.

Commenting on social media, strong national issues critic and analyst Onjezani Kenani started a debate by saying: “I have been reflecting on the interest-capping law. I now realise we need to be very careful before taking the plunge. We must learn from others. From Kenya. From Zambia. 

“If not well-designed, the cap will lead banks away from lending to small borrowers. Kenya tried to impose the law from September 2016. Within a year, President Uhuru Kenyatta — whose signature brought the law into effect — reversed the conviction he shared with the legislature, conceding that the amendment did not have the desired effect.

“You see, banks ‘buy’ deposits and ‘sell’ loans, earning the difference. Those deposits and loans are bought and sold at an ‘interest rate’. Additionally, the buyers of those loans are businesses and the government.

“The government is a less risky borrower than the small businesses and also has the capacity to be a bigger player in the loan market than several businesses put together. Because banks spend a lot of time and money vetting and tracking borrowers, they will prefer to lend to the government even if both the small businesses and the government were paying the same interest rates.

“In the end, it’s the small business borrower who gets hurt by the decision to cap interest rates – which is an irony, because the bill supposedly intends to protect the very same small business owner from extortionist rates charged by banks. Now Kenya is having a rethink. Zambia also attempted to do the same but reversed the decision in 2015.

“It is a populist decision, I know. On the face of it it makes a great deal of sense to shield the poor from extortionist bank rates. But, as already said, capping does not mean banks will automatically be lending to everyone. In the end, each bank will want to lend to the least risky borrower, i.e. the government or big conglomerates. Small to medium enterprises will suffer, including all those bank mkhonde-dependent businesses,” Kenani said.

Khumayo Sato Java commended Kenani, saying his views were an eye opener because he was of the view that Parliament had made a wrong decision. “What do you think would be the best strategy to protect small borrowers apart from capping?” he asked.

Tasokwa Mchawe said: “I hope you have read this bill inside out and it’s arithmetic involved. It is aimed at punishing banks and rewarding the borrower and depositors. 

“We are generally an economy that has experienced higher levels of inflation and using inflation as a trigger point for all the interest rates without considering other variables is also flawed. 

“Yes, everyone needs cheap money but to others even if you give them money at zero interest they will still default meaning we need to change our mindset before blaming banks — you don’t borrow for consumption.”

Charles Chinkhuntha said: “Until I see figures of the expected impact in Malawi of this interest capping but as it is now, we are all speculating and drawing conclusions to suit our tastes. Perhaps we needed a detailed study first and establish the cost of each option. 

“What if indeed the interest rates are high and could be lowered without any negative impact on the banks? What if the interests are low and they need to be revised upwards?  

“Some steps were skipped when coming up with this. We need a detailed study first to establish the Malawi case on interests. To what extent can we lower/increase the rates? At what cost for each decision made.”

Times Group’s Managing Director, Leonnard Chikadya chose to differ, saying every economist policy maker in Ministry of Finance and Reserve Bank knows the source of the problem — the “Government’s high appetite to borrow from banks to finance their funding gap (albeit to cover useless political projects not covered by taxes and donor support). 

“If Government reduced borrowing from banks, say by 50% (a mere dream!!!!), banks that are collecting those deposits will come to you and me running at lightening speed to offer us all to borrow at the lowest interest rate to underwrite interest to their depositors. 

“We have a living example which we all seem to forget conveniently. Some of you will recollect that bank relationship managers were busy visiting corporate clients and some individuals to offer loans you never solicited during the years 2005 to 2008 when [former] President late Bingu reduced Government borrowing and the country benefited from cancellation of foreign debts under Highly Indebted Poor countries, Malawi was the beneficiary of this Father Xmas lottery! 

“Government has to fix its Fiscal discipline and there will be no need for interest capping. But are we ready for this bitter pill? The symptoms do not give pointers in that direction. Now we have to pay free allowances to those over 65 years. We are a lost Nation that is refusing to change status quo,” Chikadya said.

Stanislaus Mtingwi asked if it can also be shared of success stories from countries where it was implemented successfully.

Simao Chigwenembe Chatepa said: “What made the bill “fail” in Kenya is not what is making it not fail in South Africa for example? Why should we draw inspiration from the countries who have failed while we have a dozen or more countries implementing this interest capping law successfully?”

Profigo Xihevi Solus said: “[Are there] any more research papers read, what are the practical situation in other countries apart from Zambia and Kenya? How was it managed in Zambia and Kenya? So is there no way banks can be made to do a better business with respective to interest rates?

“But seriously, banks operate as cartels exploiting the poor while making business for the elites. Even over borrowing by our government is even not helping the matters as it is overcrowding the market,” Solus said.

Another commented: “There are countries which have successfully implemented capping and is it not more plausible to learn from those that have failed and capitalize from those that have succeeded in this. Other than wholesale condemning the bill, I would suggest we learn from the mistakes and perfect our own.”

Manuel Funsani

You have to tame inflation succesfully first and stop the government from borrowing from commercial banks. Then you can talk about interest capping otherwise this could be an exercise in folly.

Gervasio Kaliwo said in a Republic every aspect of socioeconomic life has a law governing it and had Malawian banks not been a cartel, the government would have allowed them to self regulate. 

“Countries in Europe, Canada, Australia and Japan all have some kind of banking laws. We need a regulatory  framework for the Malawi banks. Check this, at one point  the banks were paying 10% for deposits and were charging 45% on loans.”

Michael Mwasikakata said there is absolutely no justification for such exorbitant prices for capital. 

“The law alone will not solve the problem,  that is granted, but it is a starting point where nobody is genuinely interested to resolving it. Banks are colluding to charge huge interest rates and make super supernormal profits at the expense of borrowers and at the expense of the country setting on a real growth path. 

“When people start quoting the basic rules of supply and demand to justify such gaps between deposit and lending rates, we should be very worried.”

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