Wednesday, 7 May 2014

Ridiculous bank rates!

Sunduzwayo Madise
7 May 2014

The Reserve Bank of Malaŵi (RBM) as regulator of the financial services, has published bank charges and rates of banks indicating that some banks are charging as high as 47% as lending rate against a savings rate of 5%.

During the days of old, we had three rates for katapila (usury):
mwala ku mwala (rock to sand) - 100%
mwala ku njelwa (rock to brick) - 50%
mwala ku mchenga (rock to sand) -25%
[The 'rock' being the principal amount lent]

The reports indicate some banks are charging 47% as lending rate (and this may climb up to 50% if you are a taken to be high risk borrower). This is mwala ku njelwa! Katapila or usury legalised! The RBM is right to 'expose' such  banks but the RBM cannot then put its head in the sand and blame it all on 'market economy'. That is the reason why others have called for a National Credit Act and rules of capping what a person can repay (in South Africa this capped at 2 times the principal). Protecting consumers indirectly does not wash. The regulator needs to protect the consumer directly! The profits made by Malaŵian banks are astronomical, and not because of good business models but because of the 'water' between the savings rate and the lending rate and between the bank rate and the lending rate. The reason that Malaŵian banks have not diversified and come up with new financial instruments is because they do not have to; there is easy money to be made just with the status quo, so why take the risk of new financial instruments. The bank rate (as decided by the RBM) stands at 25%. Savings are averagely 5%. Lending is averagely at 45%. How the RBM and Ministry of Finance expect Malaŵi to continue on a pattern of growth with these rates is beyond me. It draws Malaŵians into a vicious circle of poverty (where they have to dig two holes to fill one hole and in the end you have holes dug everywhere). The RBM as regulator needs to step into the fray. This market economy vichi vichi (yada yada) is an old-used excuse. After all, there is no such thing as a perfect market economy or free market. All markets and economies are hybrids, essentially a complex mixture between a free market economy and a controlled one (capitalism and socialism combined). Malaŵi cannot afford to have a pure capitalist economy, Mupha wandu! (you will kill people financially). The reason why we have regulator in the financial services is not for the regulator to 'feel pity' for the consumers but to protect consumers. Financial stability and consumer protection are the key twin rationales of regulation. However, the RBM also needs to take some of the blame. The RBM asks (nay, legally demands) every commercial bank to deposit with it a percentage of customers' deposits at no interest. The commercial bank however, still has to pay returns to the depositors on this and ends up hiking the lending rate. Maybe the RBM needs to reconsider this and allow banks not to have an 'excuse'. And does anyone wonder why people are not saving? They are busy repaying loans!

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