Friday, September 19, 2008

Increased lending rates will affect economy, warns Sichinga

Increased lending rates will affect economy, warns Sichinga
By Florence Bupe
Friday September 19, 2008 [04:00]

ECONOMIC consultant Bob Sichinga has observed that increased lending rates by commercial banks will have negative spiral effects on economic sectors that were critical in poverty reduction. In an interview, Sichinga said high interest rates always work against development as it becomes expensive to borrow.

“The rising lending rates by commercial banks will just make our situation worse,” Sichinga said.

He said small-scale enterprises, which constitute a large portion of the economy, were the hardest hit by the situation.

Sichinga observed that whereas large scale businesses were able to bargain with commercial banks for lower rates, small-scale entities and individuals were not privileged to do so.

“It is usually the small- scale companies that get hammered with high lending rates. Big companies are able to bargain with banks for a reduction in rates, but the small businesses are usually left out,” he said.

Sichinga said the fact that Zambia’s inflation rate had hit the double digit status again, standing at 13.2 per cent in August, was not a justification to have interest rates hiked at almost double the rate of inflation.

Recently, most commercial banks upped lending rates from an average of 17 per cent to between 19 and 21 per cent.

Sichinga suggested an increase in the lending portfolio as one way of cushioning the impact of high inflation rates.

And some small-scale entrepreneurs have complained that the increase in lending rates would work against business expansion.

Idah Kalaluka, a small- scale poultry farmer, complained that the decision by commercial banks to increase lending rates was a hindrance to her plans of expanding her business.

“If interest rates can be reduced, a lot of people will be able to raise capital through the banks, thereby contributing positively to the general welfare of the country. As the rates stand now, one has to really think twice before rushing to the banks, as they will be subjected to exorbitant rates,” said Kalaluka.

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