SMEs revive interest rates capping debate
Some Small and Medium Enterprises (SMEs) have called for interest capping, saying current interest rates are too high for small businesses.
The SMEs argue that it is unfair that small businesses are subjected to similar interest rates and lending conditions as that of big businesses that have negotiating abilities to get fair interest rates.
The debate resurfaced last week in Kasungu during the Reserve Bank of Malawi (RBM) Credit Awareness Week, whose objective was to create awareness on the benefits of following effective credit management practices and use of credit history reports from Credit Reference Bureaus.
Speaking during the awareness meeting, one of the cross-border traders, Salad Kachala, said the central bank has failed small businesses by not properly regulating the interest rates.
“My concern is that only well-to-do people in society have collateral to qualify for borrowing from banks while small businesses have no chance. As a result, the gap between the rich and the poor keeps widening.
“Those rich people with sound collateral enjoy lower interest rates while small businesses without collateral are subjected to higher interest rates,” he said.
One of the agro-dealers in the district, Alex Chiwaya, opposed the interest rates capping, but urged the central bank to ensure narrowing the interest rates gap between the central bank policy rate and the commercial bank reference rate.
He argued the move would trigger reduced lending rates from commercial banks to customers than capping the interest rates in a liberalised economy which he observed would backfire.
RBM senior analyst for payment systems Susan Matita told the meeting that debate on interest rates capping was exhausted earlier through RBMs public engagements and Parliament that disapproved the idea.
Matita emphasised that capping interest rates would not be ideal in the current liberalised economy. Bankers Association of Malawi, Malawi Confederation of Chambers of Commerce and Industry and Parliament objected to interest rate capping last year, fearing that the move could crash the banking sector.
