Collateral hampers SMEs access to loans
Despite softer lending rates, small and medium enterprises (SMEs) say they are still facing challenges to access finance due to strict collateral requirements.
Chamber for Small and Medium Businesses Association executive secretary James Chiutsi said in an interview on Sunday that this scenario is stifling the growth of the sector that has the potential to create millions of jobs.
He said: “We have several entrepreneurs, some just coming out of universities, with sound business ideas, but have no means to acquire assets to use as collateral In Malawi, not many people have acquired assets that can be deemed as collateral.
“So, this means SMEs cannot acquire industrial machinery nor pay for skilled labour, among other challenges. This then means production quality remains poor, making it difficult to compete internationally, let alone help in helping the country in import substitution.”
While maintaining the policy rate at 13.5 percent last week, Reserve Bank of Malawi (RBM) said lending rates continue to decline with the base lending rate, now the reference rate, recorded at a historical low level of 12 percent.
RBM Governor Dalisto Kabambe told journalists in Lilongwe on Thursday that as a result of the low lending rates, private sector credit has maintained a strong growth momentum.
He said the third quarter (July to September) of 2019 registered a growth rate of 19.2 percent compared to 15.1 percent in the preceding quarter and 9.9 percent in the corresponding quarter of 2018.
Kabambe said this follows recent declines in interest rates as well as a generally improved macroeconomic environment.
In an earlier interview, Bankers Association of Malawi (BAM) chief executive officer Violette Santhe said in addition to the conventional lending instruments, commercial banks have already started to collaborate with other stakeholders for innovative financing, which she said can support some pockets of SMEs not able to meet existing loan covenants in the banking industry.
She said the Malawi economy needs to exploit innovative financing models to fill this gap by addressing specific market failures and institutional barriers.
Last week, RBM spokesperson Mbane Ngwira said banks base lending rates are just the average cost, which represents interest rate paid on deposits, Lombard rate and all kinds of deposits rate.
“What we are saying is that this [interest rate] is not fixed over time,” he said. RBM last cut the policy rate, the rate at which commercial banks borrow from the central bank as the lender of last resort, by 100 basis points from 14.5 percent to 13.5 percent in May this year.
