Hauya--The current interest rates commercial banks offer act as a big barrier to women economic empowerment efforts--Picture courtesy of NGO-GCN (1)

Interest Rate Capping Bill to empower the poor

The debate to cap Malawi’s high bank lending rate continues to attract attention from different sectors of the economy. Recently, the NGO Gender Coordination Network (NGO-GCN) threw its hat in the ring siding with the business community and members of Parliament (MPs) to debate and pass the proposed Interest Rate Capping Bill into law.
The proposed bill seeks to cap the interest rate on credit facilities to percentage points above the prevailing policy rate for lenders and below the same policy rate for depositors.
However, financial institutions have cried out saying, if passed, the law will cripple the operations of the money-lending industry.
But Innocent Hauya, NGO-GCN network coordinator says the enactment of the bill into law, will open business opportunities for poor women and encourage inclusive banking for the majority of the country’s population engaged in agriculture and entrepreneurship.

Promoting SMEs

Hauya further observed that the current interest rates do not support the promotion and enhancement of small and medium enterprises (SMEs) thereby denying under-resourced women a chance to actively participate in economic activities.
“We believe commercial banks are denying the majority poor access to financing that could enable them actively participate in economic activities. That’s why we think putting a ceiling on interest rates would help address problems of financial exclusion women currently face,” he says.
Hauya added that high interest rates being offered by the commercial banks have forced majority of the enterprising women into village savings and loan (VSL) groups, which are not regulated by the Reserve Bank of Malawi (RBM).
He said VSL groups are a better alternative for women’s access to credit.
However, the groups are also a risk to the women’s savings as they are self-regulated and operate on trust.
“We are happy that RBM has reduced the policy rates, but we would love to see government to implement long-term policies to ensure sustainability because we fear that RBM may decide to adjust upwards the policy rate anytime if there is no clear legislation guiding it.

Women Fund

We further urge government to operationalise the National Action Plan on Women Economic Empowerment, which also proposes the setting up of a Women’s Fund. This Fund will give women more options on where they can access capital for their various enterprises,” Hauya stressed.
The debate was initiated by opposition Member of Parliament, Alexander Kusamba Dzonzi, who argued that leaving commercial banks to decide interest rates has resulted into predatory interest rates charged on poor people for the benefit of commercial banks alone.
Meanwhile, Microloan Foundation executive director and board chairperson Microfinance Association of Malawi Network (Mamn) Corrie Mulder warns stakeholders to tread carefully as excessive financial access and credit growth can also affect microfinance sector operations.
“A lot of Malawians will lose access to finance if companies that cater to them cannot survive,” Mulder said.
He said the Mamn members have taken on initiatives to educate and mentor individuals and groups who seek loans on formulating business plans so they are able to pay back the loans.

Financial inclusion

Vision Fund chief executive officer Chilala Hakooma said championing financial inclusion did not come cheap and whatever charges are levied on loans are reflective of the service they provide to people.
Hakooma also cautioned proponents of the Bill against using example in the region such as Kenya and Zambia who capped interest rates but crowded out private sector development.
Ecama executive director Maleka Thula said opines that RBM needs to investigate if indeed the pricing of financial products is exorbitant and outline relevant risks that come with lending to different borrowers.
Meanwhile, Hauya says the network will put up a policy brief on why they are in support of the Interest Rate Capping Bill.


Charles Mkula is a journalist who has worked for a number of newspapers and magazines in Malawi since 1998. He has also worked as a communications officer for the Secondary Centres Development Programme (SCDP), an urban development programme in Malawi set up with support from the German KfW to support urban development. Since his entry into the development field, Charles has been passionate about advancing rural and urban development in Malawi.