HIGH INTEREST RATES DENY EXPANSION OF SMEs

Kingsley Mwewa is a shoe maker who has been in this business for over twelve years. He operates his business in a small room down town of the capital of Zambia -Lusaka. Kingsley and his extended family of twelve have entirely depended on this business for over a decade. But due to the high interest rates, this shoe maker has only been able to just get enough and some times not enough Kwachas for his family.

When we asked Kingsley if he had ever tried to get a loan, he replied with a twisted facial expression “yes I have ever, but the percentage is too high”. This has not given his business and many other Small and Medium Enterprises in Zambia the opportunity to expand. Apparently the rate is at 21% in commercial banks and much higher in micro finance institutions.

The Zambia Association of Banks justify their high lending rates with a number of reasons. The Vice Chairperson Mizinga Melu said “the working conditions are not favorable for them to lower the rates. For example, electricity is not reliable we have to use generators which consume a lot of fuel which is expensive.”

Bad debts cause high Interest rates

The economy of Zambia is liberal meaning that Central Bank of Zambia can not regulate these banks. But it can not just sit and watch people being robbed, and this is why the governor Caleb Fundanga says, they introduce the credit reference bureau to curb loan defaulters. This will eventually cut down the number of bad debts and hence reducing the lending rates.

Economists observe that there is no high competition in the banking sector in Zambia and so this justifies the high lending rates. An economist Yusuf Dodia said that Zambia has only 17 financial institutions both commercial and Micro finance. So if only government licenses other banks, there will be high competition and defiantly banks would lower the interest rates.

This would do much for the SMEs like Kingsley Mwewa who will be able to expand his business and also realize his vision of a big shoe factory employing several Zambians and rewarding the nation a lot in terms of revenue.

Haddie Nabbale