NGO Network backs interest rate capping law: Malawi banks wince

NGO Gender Coordination Network (NGO-GCN) has added its voice to calls from companies, businesspersons and opposition members of Parliament (MPs) to debate and pass the proposed Interest Rate Capping Bill into law.

Hauya: The current interest rates commercial banks offer act as a
big barrier to women economic empowerment efforts—Photo by Watipaso Mzungu, Nyasa Times

cappingInterest Rate Capping

The proposed bill seeks to cap the interest rate applicable on the credit facility to a certain percentage above the prevailing policy rate for lenders and below the same policy for depositors.

However, financial lending institutions have expressed reservations with the Bill, fearing it will cripple the operations of the lending by banks.

But speaking in an interview with Nyasa Times in Lilongwe, NGO-GCN network coordinator Innocent Hauya, defended those agitating the enactment of the bill into law, saying the current interest rates commercial banks offer act as a big barrier to women economic empowerment efforts.

Hauya further observed that the current interest rates do not support the promotion and enhancement of small and medium enterprises (SMEs) thereby denying under-resourced women a chance to actively participate in economic activities.

“Our membership is grouped into five thematic areas, which include Child Rights, Gender-Based Violence, Women in Politics and Decision-making, Gender-Related Laws and Agriculture and Women Economic Empowerment. Our interest in the Interest Capping derives from Agriculture and Women Economic Empowerment sector because we have discovered that most of the women are involved in agriculture and entrepreneurship.

“We believe commercial banks are committing crimes against humanity by denying the majority poor access to financing that could enable them actively participate in economic activities. That’s why we think putting a ceiling on interest rates would help address problems of financial exclusion women currently face,” he said.

Hauya added that high interest rates being offered by the commercial banks have forced majority of the enterprising women into village savings and loan (VSL) groups, which are not regulated by the Reserve Bank of Malawi (RBM).

He said VSL groups puts security of the women’s financial investment at risk.

“We are happy that RBM has reduced the policy rates, but we would love to see government to implement long-term policies to ensure sustainability because we fear that RBM may decide to adjust upwards the policy rate anytime if there is no clear legislation guiding it.

“We further urge government to operationalise the National Action Plan on Women Economic Empowerment, which also proposes the setting up of a Women’s Fund. This Fund will give women more options on where they can access capital for their various enterprises,” Hauya stressed.

Malawi Congress Party (MCP) lawmaker for Dowa West, Alexander Kusamba Dzonzi, said the lending system should benefit both the commercial banks and ordinary Malawians not as is the case where ordinary people are given a raw deal due to high-interest rates.

Dzonzi said it is evident that the deal of leaving commercial banks to decide interest rates has resulted into predatory interest rates charged on the citizenry.

“It must, therefore, be imperative that Malawi comes up with laws to cap the commercial lending rates,” he said.

But Microloan Foundation executive director and board chairperson Microfinance Association of Malawi Network (Mamn) Corrie Mulder cautioned that financial access and credit growth would adversely be affected.

He said the Mamn members have taken on initiatives to educate and mentor individuals and groups who seek loans on formulating business plans so they are able to pay back the loans.

“We need to be careful when we institute this, issues of sustainability of the microfinance institutions must also be taken into account. A lot of Malawians will lose access to finance if companies that cater to them cannot survive. We are not here to rob people, there are no big profits to be made and do not consider us as predators,” Mulder said.

Vision Fund chief executive officer Chilala Hakooma said championing financial inclusion did not come cheap and whatever charges are levied on loans are reflective of the service they provide to people.

He said the proposed legislation should consider that lending institutions are in different segments and microfinance institutions should not be put in the same category as commercial banks.

Hakooma also cautioned against using example in the region such as Kenya and Zambia who capped interest rates but crowded out private sector development.

Ecama executive director Maleka Thula said interest rate capping was not the solution and Malawi’s economy could not be compared to others within the region.

“If we were to cap, banks with high operation costs would go under or fail. It has not worked in Kenya for the simple reason that it did not enhance private sector borrowing but shrank it because banks opted to lend to the government instead,” Thula said.

He said RBM needs to investigate if indeed the pricing of financial products is exorbitant and outline relevant risks that come with lending to different borrowers.

Meanwhile, Hauya says the network will put up a policy brief on why we are in support of the Interest Rate Capping Bill.

The Bill, which proposes to cap the interest rate applicable on the credit facility to a certain percentage above the prevailing policy rate for lenders and below the same policy for depositors, was first tabled in Parliament in December under the Private Members Bill by Dowa West legislator, Alexander Kusamba Dzonzi.

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Prophet Lukau
Guest

We should also see our government rescuing citizens by quashing loans rather than stealing monies

mtete
Guest
mtete

Whether DPP, Goodall, Banks like it or not, we are passing a bill on Interest Capping sometime after May 2019. Dyera inu a ma Bank. Your time of ripping citizens is up. You’ve sold enough stollen property.

Tizanka
Guest
Tizanka

Poor people don’t borrow in billions. Only government and amwene access loans in millions of dollars. Capping interest will only allow government to borrow more and amwene to get rich. Why can’t we come up with business subsidies and or a development bank rather than kulemeletsa amwenyewa? You can’t cap interest on consumer loans that’s inflationary, tipange interest cap pa loan yogula Tiidza zoona? Malawians are lazy with their brains ndithu

kalulu wadwala
Guest
kalulu wadwala

Standard Bank is one robber.

Prophet Lukau
Guest

Let people test it.Do not bar us from accessing loans that do not make lose property.Seeing is believing.

Geoffrey
Guest

Loans, Loans, Loans and loans. Start using your heads people! If you have a great idea, finance is available!

Bwande
Guest
Bwande

DO NOT BE CHEATED THAT INTEREST CAP HAS FAILED IN KENYA, IT IS STILL OPERATION A BEARING FRUITS IN THAT THE CONTRACTION SECTOR AND MORTGAGE PORTFOLIO HAS GROW TREMENDOUSLY. In fact Kenyas biggest bank by assets, Kenya Commercial Bank has recorded the highest earning figures up 20% during the period under interest rate cap than the previous year without the interest rate cap. DONT CHEAT US, IN KENYA ITS WORKING WELL. These banks are just greedy, theyre used to making easy money here at the expense of customers, they must not cheat that theyll fail, and by the way, are… Read more »

Clement
Guest
Clement

The problems with the Malawi Financial institutions is that there is no competition. They have the same high charges, interest rates etc. They act like a cartel. Without competition people have no where to turn to start a business or expand a business. The Reserve bank and the Government should break up this cartel and allow banks to compete on charges and the interest rate they charge borrowers and depositors. In developing countries people change Banks regularly depending which Bank is providing better interest rates and lower charges.