Malawi lending rates shock financial expert

London-based financial trainer and investment adviser, Paul Richards, has expressed shock over the country’s bank lending rates, saying they are prohibitive for individual borrowers and investors.

Richards has warned that local financial institutions risk stagnation if corporate financing continues to be characterised by high interest rates that hover around 40 percent.

He said Malawi’s lending rates remain among the highest in the world and that investors cannot manage to borrow at such high rate to expand their businesses.

“It is very hard for companies to expand by borrowing money from commercial banks whose lending rates are expensive. My observation is that Malawi’s lending rates are overly expensive for investors to make significant profits,” he said on Friday in Blantyre on the sidelines of a three-day training he conducted for managers from the country’s financial institutions.

Nico Asset Managers Limited, a subsidiary of Malawi Stock Exchange (MSE)-listed financial services group Nico Holdings Limited, organised the training to enable financia industry managers acquire skills and build capacity on corporate financing.

“Government and commercial banks must seriously consider reducing their lending rates so that investors can make profits and expand their companies,” said Richards.

He emphasised that high lending rates are not healthy for a developing economy as they tend to discourage people from borrowing and saving let alone acquire shares on the stock market.

“You don’t expect the economy to improve in such an environment,” said Richards.

In the 2015/16 National Budget, Minister of Finance, Economic Planning and Development Goodall Gondwe said the financial plan assumes an optimistic macroeconomic outlook for the next financial year.

He said among others, government projects a general decline in interest rates, based on the expectation that the Reserve Bank of Malawi (RBM) policy rate or bank rate, currently at 25 percent, will be reduced in response to this dampening trend in inflation, which rose to 19.5 percent in May 2015 from 18.8 percent the month before, according to National Statistical Office, (NSO), a situation analysts argue could frustrate government’s forecast.

Commenting on the training, Nico Asset Managers chief investment officer Emmanuel Chokani said it was crucial as it exposed local finance managers to international corporate financing perspective.

He expressed optimism that the training will result in improved service delivery by financial institutions.