High interest rates choking SMEs
The National Association of Small and Medium Enterprises (Nasme) has appealed to the financial sector to reduce interest rates to a manageable level to save small-scale businesses from collapsing.
The cost of borrowing has in recent times jumped to prohibitive levels, with most banks’ base lending rates hovering at above 40 percent, even when the bank rate—the rate at which commercial banks borrow from the Reserve Bank of Malawi (RBM)— has been at 25 percent since December 2012.
The association’s Southern Region chairperson, Lewis Chiwalo, argued on Wednesday that with the high interest rates impacting heavily on companies, the possibility of the effects being thrown into the small and medium enterprises (SMEs) not ruled out.
“When we have exorbitant interest rates like the ones we have at the moment, they impact heavily on the businesses. Eventually, we will see that paying back the loans will be a bit of a problem for the entrepreneurs,” he said.
“This could kill the small and medium enterprises. That is the whole reason why we are requesting the financial market to consider reducing their interest rates to a level where it is going to be manageable not as they are now,” said Chiwalo.
He was speaking in Mwanza, when the group’s district chapter presented a trophy to Mwanza Standard Bank Service Centre in appreciation of what the bank has done in boosting small-scale businesses.
But last week, RBM deputy governor for economics Naomi Ngwira said the current monetary policy being pursued is not meant to squeeze the economy, arguing that it is there to ensure financial stability to curb inflation.
Head of Standard Bank Mwanza Service Centre Peter Benjala said they are equally concerned about rising interest rates because they impact on their customers.
“We are keenly looking at the way our mother bank, Reserve Bank of Malawi (RBM) is handling the issue. We know that the central bank and government are doing something to ensure that the rates go down,” he said.
Benjala said before they introduced the quick loans, people from Mwanza had trouble getting their businesses off the ground, adding that now businesspeople are doing well in terms of capital competitiveness and business have grown.
One of the beneficiaries, James Masonga, who is the owner of Chuma Chiri M’nthaka Agrodealers, in an interview, agreed that the quick loans have helped him in his business.
“I got a K500 000 [$1 250] loan last year to enhance my capital. I was able to buy a lot of goods for my shop with that loan, and now I am building a house.
“The interest rate was alright last year, but since their adjustment, I will be paying more for the same loan and I will realise little from my business,” he complained.
