To cap or not to cap interest rates


By Chimwemwe Mangazi:


The Joint Committee of Parliament on the Interest Rate Capping Bill last week met stakeholders to solicit views on how amendments to the Financial Services Act should be coined for the second reading of the bill in Parliament.

The committee met representatives of microfinance institutions, civil society organisations, the Treasury, Reserve Bank of Malawi (RBM) and the Bankers Association of Malawi (Bam).


Out of all stakeholders, the civil society, under the banner of the Human Rights Defenders Coalition (HRDC), seems to have met the expectations of the committee as members were seen nodding their heads during their presentation and uttered comments in agreement to what they submitted to the committee.

The civil society organisations (CSOs) have endorsed the bill as it was drafted, stressing that the way it is, it will provide economic liberty to poor Malawians that have overtime been duped by lending institutions who offer high interest rates.

HRDC chairperson, Timothy Mtambo, went on to say that anyone who opposes the bill is a witch and if is not be passed, it will trigger another mass demonstration.


“Our demands are very clear and straight-forward. This bill must be tabled and passed in the state it was proposed because only then will Malawians be liberated from this long term punishment of stealing from them.

“Secondly we have noted that default penalties people are being charged is illegal and we want that to be reversed and the people that have been punished must be given their money,” Mtambo said.

He added: “We are also warning the Ministry of Finance for saying the Reserve Bank of Malawi (RBM) should be regulating the rates and we are saying no one is bigger than the people of this country so we want them to listen we cannot be at the mercy of RBM we want to have a law that will be regulating this.”

Chairperson of the committee, Alekeni Menyani, curtailed discussions with Secretary to the Treasury, Cliff Chiunda, the RBM entourage and Bam, stressing that they are living in denial as, currently, a position has been taken to have the laws established rather than the arguments they brought denouncing the bill all together.

The three institutions have one view that if Malawi wants interest rates reduced, legislation is not the way to go but rather regulation and allow positive trends seen in the prevailing market determined economy to do the magic.

RBM Governor, Dalitso Kabambe, told the committee that it should mind that interest rates which seem to be at the centre of the controversy, are a factor of how much the economy is producing, exporting, how much liquidity is being injected on an economy’s output, how much government is borrowing and inflation behavior.

“All these factors taken into account, the policy rate and base lending rate really speaks to the state of our economy. Other economies have better and larger outputs and exports, maybe less borrowing by government but also maybe their inflation is low and they can afford lower interest rates,” Kabambe said.

Bam President, Paul Guta, told the committee that people are only looking at the profits that banks make without considering the investment which they put to post such profits which if considered not many banks would be seen to be making profits at all.

“Profit is a number but, once you talk about a number without relating to a particular base, then a statement like supernormal profits appears to make sense. But it doesn’t because one has to look at how much capital is involved to generate that kind of revenue that’s why there are terms such as return on equity or return on capital,” Guta said.

All in all these argument were not strong enough to subdue the stand of the entire committee as they were told that the decision cannot be reversed.

To show mercy to the institutions, Menyani, promised to give another chance to the institutions to appear before the committee this week to weigh in on how the amendment should be put for the second reading of the bill in Parliament.

“There are two or three issues that have come clear and thus it will be dangerous to oversimplify the matter and Bam, RBM and the Treasury are very key stakeholders.

“We as Parliament, our fundamental duty is to protect the public interest. We have agreed to delay in serving the report to accord these institutions another opportunity to give their views from the perspective that we go into the proposed amendments,” Menyani said.

Truth be told, members of the committee took off their economics thinking caps and were putting on politician caps and could not take any advice on how bad the situation could get if the amendments are implemented.

Yes Parliament is waiting for the second reading of the bill but if the committee would agree to recommend otherwise, the House could be inclined to the same.

Judging from how charged members of the committee were last week, in as far as establishing the amendments to the Financial Services Act is concerned, there is no turning back and Malawi will in due course have interest capping laws.

From RBM and Bam’s perspective, the economy is going to crumble once the laws are established but from the CSOs perspective Malawians have cried enough and must be rescued from high interest and unsound default penalties imposed through such laws.

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