Experts divided on rate capping

Legal, banking and consumer protection experts on Friday differed on whether Malawi should introduce interest capping or not. The experts expressed the views in Salima during a panel discussion during the Financial Services Lawyers Conference organised by the Reserve Bank of Malawi and the Malawi Law Society. She added that it is not right to compare…

Legal, banking and consumer protection experts on Friday differed on whether Malawi should introduce interest capping or not.

The experts expressed the views in Salima during a panel discussion during the Financial Services Lawyers Conference organised by the Reserve Bank of Malawi (RBM) and the Malawi Law Society (MLS).

Competition and Fair Trading Commission Chairperson Jerry Jana said capping interest rates could help prevent consumers from paying the price of bankers’ inefficiencies.

Also in favour of interest rate capping was the Legal Affairs Committee of Parliament Chairperson Peter Dimba, who described prevailing interest rates in the market as pure theft.

Dimba gave an example of a colleague who borrowed K12 million from a commercial bank and managed to pay back K5 million before a financial misfortune happened.

He said after the misfourtne, the borrower defaulted and within a short time, the loan shot to K22 million and the bank repossessed his house worth K35 million.

“We, as Parliament, are there to protect the people,” Dimba said.

Institute of Bankers Chairperson Zandile Shaba said one has to look at the banking sector as a reflection of the economy, saying there were times when interest rates were as low as four percent and that there is a need to look at what was happening in the economy at that time.

“Interest rate is just a symptom of the prevailing economic environment and there are a number of issues that one has to take into account when looking at these symptoms,” Shaba said.

She added that it is not right to compare interest rates in Malawi with other countries in the region, saying the operating environments are different.

Among other things, Shaba cited the high cost of doing business, internet connectivity and electricity and other factors that make Malawi to have different rates to other countries.

“The banking sector in Malawi is also extremely small and dominated by two banks. Competition drives down pricing. But what has happened in Malawi? If it is such a fantastic business, why is it shrinking. Why has the number of banks shrunk,” she said.

RBM Principal Economist Austin Chiumia said interest rates in Malawi have been declining but that they remain elevated.

Chiumia said there was a need for all stakeholders to to agree on the causes of the high interest rate environment in Malawi so that, together, they could come up with a solution.

Speaking earlier, University of Malawi Associate Professor of Economics Levison Chiwaula pointed out that, in countries where capping has been done, it targets some components of the interest rate and not just wholesale capping of the rate.

The interest rate capping debate was first introduced to Parliament by the then lawmaker for Dowa West Alexander Kusamba Dzonzi, who argued that high interest rates charged by banks were affecting the growth of businesses and individual borrowers.

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