6% interest rate cap for MFIs a boon—analysts
The move by microfinance institutions (MFIs) to peg their monthly interest rates at six percent as per the directive from the Reserve Bank of Malawi (RBM) has attracted mixed views.
A few weeks ago, the RBM said the pegging of interest rate is meant to ensure that small-scale businesses and low income earners access loans at affordable rates.
RBM spokesperson Mbane Ngwira said in an interview on Tuesday the move also allows salaried people to manage their finances well and not get trapped in credit cycle.
Economics Association of Malawi (Ecama) executive director Maleka Thula said the arrangement is good, especially for small-scale enterprises and households.
He said: “It is our expectation that this reduced cost of borrowing would help the borrowers expand or start-up businesses and not support consumption.
“Our expectation is that as long as the economy continues to perform well, interest rates are more likely going to go further down in the country’s credit market. Otherwise, sustained low interest rates are unattainable and detrimental to the financial sector if the economic environment is unfavourable.”
Investment and market analyst Armstrong Kamphoni said on Tuesday the arrangement will help protect borrowers from excessive finance costs which in turn, will promote responsible lending.
“The MFIs industry caters for a particular segment of the market where alternative forms of borrowing are either prohibitive or inaccessible,” he said.
But Alliance Capital Limited research manager Bond Mtembekeza, while saying low interest rates in an economy translate into economic growth, cautioned that the move may increase risks on the operations of MFIs.
But Malawi Microfinance Network board chairperson Corrie Mulder is on record as having said they proposed the arrangement to assist low income earners access loans at an affordable cost.
“We believe this is achievable by most microfinance institutions,” he said.
Recently, the RBM reduced the policy rate from 16 percent to 14.9 percent, which compelled banks to soften their lending rates.
