By Alfred Chauwa

Malawi’s Activists are calling for the immediate resignation of Reserve Bank Governor Dalitso Kabambe or the immediate decrease in interest rates saying the current status quo is making Banks and other financial institutions reap huge profits using peoples’ deposits.

The Human Rights Defenders Coalition made this implicit call to the Parliamentary Joint Committee this week which was sitting to take views from various stakeholders on the draft Interest Capping Bill christened the Financial Service Amendment Bill No 2 of 2018.

For starters the bill aims to regulate interest rates as well as recovery of loans and set policy rate as well as setting up of Treasury Bill Rate.

The Bill also seek to improve non performing loans as well as mop up excess liquidity and reduce domestic public debt and shrink the spread between lending and deposit rates.

The bill further seeks to propose fixing the rate at 2% above inflation if inflation is less than 10% and at 10% if inflation is above 10%

The Governor says legally, this is covered under the Public Finance Management Act (PFMA) and any amendments need to be done in PFMA.

The Bill was presented in Parliament but was defeated. Since then the special joint committee was set to hear views from Malawians.

“The high lending interest rates (double digits) and low deposit interest rates (single digits) have worked in favour of banks and not depositors,” said Anthony Mukumbwa, who made the presentation on behalf of the Activists.

Mukumbwa, cited one local bank, which he said made “extraordinary profitability…using people’s money”

“The bank was able to achieve MK48 billion interest income (after profit of MK19 billion) against a share capital of MK467million. This was extremely good for shareholders because much of the profits made did not trickle down to depositors (only MK6.5 billion) who provided money to the bank,” he said.

The Activists also faulted the country’s commercial banks accusing them of investing peoples’ monies in sectors which they claimed cannot grow the economy.

For instance, one major Bank invested peoples’ monies as follow; Wholesale & Retail: 39%, Manufacturing: 20% and Agriculture: 17%. While another; did Wholesale & Retail: 34%, Agriculture: 21% and Manufacturing: 15%.

Local Banks reaping huge profits from the rates status quo

“Can investment priorities above, grow the economy? You have failed Malawians. They are giving peoples’ money to Shoprite, Game etc. instead of strengthening the agriculture sector, which we all know is the backbone of our economy. What can we export if we are not investing in agriculture? 

“The little export proceeds we earn from tobacco, tea, coffee etc. is consumed to pay imports for consumer goods,” Mukumbwa said.

However, Kabambe acknowledged that Malawi’s lending rates have been high compared to regional countries.

“Some of the reasons for high interest rates in Commercial Banks are high wages, high expatriate costs, high cost of investments in banking sector technologies and infrastructure, high risks of default from Malawian borrowers and high government borrowing,” Kabambe said.

According to Kabambe RBM has since 2015 engaged commercial banks and the Micro Finance Institutions (MFIs) to reduce lending rates through cutting its own monetary policy rate and intensive moral persuasion, as the macroeconomic situation improved and inflation was forecast to decline.

He said the Financial Services (Amendment) Bill 2018 is proposed to regulate interest rates by proposing to cap interest rates for Commercial Banks, Micro Finance Institution and SACCO’s

He said all along, the RBM has been using moral persuasion – “the question is whether it is time to legislate as is being suggested”

The governor said that recently RBM pegged the base lending rate to the Lombard Rate using section 63 of the FSA and used the same to push Micro Finance Institutions towards particular rates no more than 4.5% for payroll lenders and 6% for MFI.

“Ideally, when enforcing a particular price, the state will need to set up its own bank to fill any void that may be created. – The 2012 fuel shortage is a lesson. The debate may also be much wider to cover other services and products,” he said.