Malawi’s cost of borrowing high

Malawi has been ranked as the third country out of 20 sampled in Africa with the highest lending rates at 24.5 percent, making the cost of money expensive.

An analysis by Business Insider, a US-based financial publication quoting World Bank figures, shows that Malawi trails Zimbabwe at 45.5 percent and Madagascar at 43.3 percent while Kenya at 12.1 percent tops the list with softer lending rate.

But Bankers Association of Malawi chief executive officer Lyness Nkungula said in a written response on Friday that Malawi is making strides to reduce the cost of borrowing.

She said: “The cost of borrowing has so many variables in it from inflation, liquidity reserve requirement, cost of funds, credit losses, including operating cost. The environment in which these countries are working are different.”

She said there is hope that with the right economic fundamentals, the lending rate could keep on reducing.

Lending rates are determined by central banks and the higher the rate, the more expensive the cost of a loan.

When the cost of the loan is expensive, borrowers are discouraged from borrowing.

In May this year, Reserve Bank of Malawi adjusted the policy rate, a key driver of interest rates on loans, by two percentage points to 14 percent from 12 percent.

The hiking of the bank rate came at a time authorities were battling high inflation rate of 14.1 percent as of March, according to National Statistical Office.

Since the last adjustment, inflation has risen to 23.5 percent as at June 2022.

Malawi Confederation of Chambers of Commerce and Industry president Lekani Katandula said in an interview that the cost of borrowing will likely go up as the central bank tries to bring down inflation.

He said: “The higher rates make it harder for businesses to invest, but unfortunately they are a necessary tool in fighting inflation.

National Working Group on Trade and Policy chairperson Frederick Changaya said high lending rates hamper export drive  initiative and also affect the import substitution drive on the domestic market.

“If inflation keeps rising, the central bank will be forced to tame this by raising policy rate which pushes interest rates upwards and this triggers depreciation of currency.

“We should brace for this exogenous impact on our economy,” he said.

In an earlier statement, RBM Governor Wilson Banda said the Monetary Policy Committee noted that inflationary pressures continue to mount following persistence of the Covid-19 pandemic-induced supply-demand imbalances, supply-chain disruptions as well as rising global energy and food prices.