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Banks predict doom over interest capping

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By Chimwemwe Mangazi:

The Bankers Association of Malawi (Bam), an umbrella body for local commercial banks, has warned that the economy would crumble if commercial banks are forced by law to cap interests.

Bam President, Paul Guta, said this on Friday after appearing before a joint Parliamentary committee commissioned to scrutinise the pended Interest Rate Capping Bill.

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Interest rate capping is a regulatory measure that prevents banks or other financial institutions from charging more than a certain level of interest.

Guta said in an interview that doing so would lead the local economy to a ditch.

“The tenets of the bill make the execution of that bill, should it be passed into law, very difficult. Before we pass the bill, it is time to have another thought in a sense that, as it stands, the position of banking is truly challenged,” he said.

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Guta said if the bill were passed, the need for banks to mobilise deposits would cease as its cost would be higher than prices of the loan.

Meanwhile, chairperson for the joint Parliamentary committee, Alekeni Menyani, said they would re-engage Bam for further discussions.

The proposal to cap interest rates was brought to Parliament in December 2016.

Emotions have dominated the consultative process.

The Malawi Confederation of Chambers of Commerce and Industry, a private sector players representative body, has been in support of the proposed law as it will benefit its members.

This come son the backdrop of the high cost of finance topping the list of doing business obstacles in the country, according to Malawi Business Climate Survey Report produced by MCCCI.

The Civil Society Defenders Coalition last week urged Parliament to consider the challenge faced by poor masses who borrow from commercial banks and other microfinance institutions when deliberating the pended Financial Services Act (Amendment) Bill.

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