We on the streets are livid to hear that some lawmakers took bribes to shoot down Financial Services (Amendment) Bill 2018 in Parliament on December 13.
It is even distressing to hear Malawi Congress Party (MCP) legislator Alexander Kusamba Dzonzi lamenting that a commercial bank offered him a K200 million kitty to abandon tabling the Bill which was set to shake up the financial sector in the country.
Simply, the Bill 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.
The proposals in the ‘Interest Capping Bill’ resonate with local folks on the street, who feel the current lending rate system favours the country’s lenders.
For example, while the current policy lending rate is at 16 percent, banks and microfinance institutions charge over 23 percent base lending rate as they are at liberty to charge as they see fit; katapila weniweni.
It is clear that the current lending system benefits the commercial banks and not ordinary Malawians. In the words of Dzonzi, 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 in October when lobbying for the interest capping Bill.
However, capping interest rates in a liberalised economy is a controversial move. No wonder commercial banks and other lenders were annoyed with the Bill.
I recall the reaction of Microloan Foundation Executive Birector and board Chairperson of Microfinance Association of Malawi Network (Mamn) Corrie Mulder who warned in October that financial access and credit growth in the country would adversely be affected with the passage of such a Bill.
He argued that lenders have over the years taken on initiatives to educate and mentor individuals and groups who seek loans on formulating business plans so they are able to pay back their loans with ease: “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.”
Perhaps he was right. In Kenya, where they once experimented with interest capping, the results have been bad.
A study on the impact of interest rate caps on the Kenyan Economy published by the Central Bank in April this year reveals that capping of bank interest rates failed to achieve its intended objective of increasing credit access to small and medium enterprises, instead it led to a reduction of the number of loans going to small and medium enterprises (SMEs).
The number of loans to individuals and SME’s declined significantly since the coming into force of ‘Interest Capping Act’ in September 2016 as lenders turned to less risky institutions such as government and big businesses.
Malawi has not copied the Kenyan Bill, so let us leave the Kenyan argument for another day as word on the street is that the ‘Interest Capping Act’ debate should be allowed to thrive and commercial banks should stop using bribes to silence it.
All Malawians want is bank charges that are levied on loans to be reflective of the service lenders provide to the people. As of now, banks and microfinance loan services leave a lot to be desired.
Dzonzi and colleagues should rework the Bill so that in future it is tabled again. Only weak and predatory banks can crush with interest caps.n