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Stop the excuses, reduce interest rates, Bahati tells banks
Commercial bank interest rates for non-prime customers currently average at 25 percent. Photo | file
What you need to know:
Whereas banks argue that there are a number of factors that feed into interest rates, State Trade Minister David Bahati says banks are running out of excuses, noting that it is time to lower interest rates
State Minister for Industry David Bahati has asked financial institutions to stop the excuses and reduce interest rates.
Speaking at the launch of the $6b Equity Bank Group revolving fund under its Africa Economic Recovery and Resilience Plan to finance the private sector in Kampala last Friday, Mr Bahati said the only factor banks should be considering now when administering loans should be to lower interest rate as well as providing patient capital to support private sector investments.
The Ugandan economy, he said, currently stands at $44b yet government can only raise Shs12 trillion with the balance coming through budget support and borrowing.
Therefore, he said, there is need to create a window for patient and affordable long term capital to support private sector growth for which government is facilitating in a number of ways such as through creating industrial parks across the country.
“Commercial banks are having a lot of excuses. The excuses are running out. It is time you consider lowering interest rates,” he said, noting that in the past inflation and the Central Bank’s key rate have been low yet commercial bank interest rates remain high, which inhabits investors from accessing credit to enhance and expand their business operations.
Mr Bahati also indicated that in the next five years government will develop five industrial parks with the necessary infrastructure, which will be available for investors.
The Equity Bank Group Africa Economic Recovery and Resilience Plan seeks to finance five million businesses and 25 million households to create 50 million jobs both directly and indirectly in Uganda, Kenya, DR Congo, Rwanda, Tanzania, and South Sudan.
During the same event, Deputy Speaker of Parliament Thomas Tayebwa, said the challenges with many businesses in Uganda is the lack of affordable capital, which has been worsened by high interest rates.
“Our biggest problem is lack of patient capital. It is prudent to have patient capital in this country to help the private sector become resilient,” he said, noting that in total Africa imports goods worth $547b annually yet if local investors are supported through provision of patient capital Africa can move away from exporting the raw material to value addition.
Earlier, Dr James Mwangi, the Equity Group Managing Director and chief executive officer had argued that interest rates are market determined and are dependent on a number of factors which include sovereignty risk, foreign exchange rate and the rate of inflation in addition to costs of operations, which he said continues to be high across Africa.
Dr Mwangi also indicated that the fund targets key sectors of the economy, among which include agriculture, which will receive an allocation of 30 percent of the Shs134 trillion, manufacturing and logistics, trade and investment and micro, small and medium sized enterprises with manufacturers accessing credit at 15 percent while those involved in capacity building will be charged 10 percent.
