FINCA to slash lending rates

FINCA to slash lending rates
By Gift Chanda
Tue 20 Dec. 2011, 13:40 CAT

FINCA Zambia Limited plans a major reduction in lending rates next year after posting a rise in 2011 loan repayments, says company chief executive officer Keith Sandbloom. In an interview, Sandbloom said 2011 was a good year, in which the firm recorded a 97 per cent loan repayment rate.

"I can report that business in 2011 has been very great. We managed to extend business and our total clientele has increased this year by almost 30 per cent," he said.

Sandbloom further expressed confidence that K57 billion worth of loans would have been disbursed by the end of this year.

"I am happy to report that the success that we had in 2011 is allowing us to do some new things in 2012 which will benefit many clients," Sandbloom said.

"One of the changes we are making is that we are going to be reducing the cost of borrowing on all of our loans by about 20 per cent and that is through reduction in interest rates and also reduction in fees."

He said the reduction would significantly benefit all the institution's clients and also improve access to financial services in the country.

"As FINCA, we have always been committed to having a very transparent pricing on our loans; meaning that people know what they have to pay right upfront before they receive the loan. So the second change we are going to be making to our pricing is that we are going to be calculating our interest rates based on the declining balance of our client's loans," he said.

[And they couldn't have done this in the past 20 years? No one has still explained the existance of a permanent liquidity gap (2% savings and 24% lending rates) for the last 20 years. - MrK]

"Currently, many of the micro finance institutions use what is called ‘flat' interest rates. That is the clients are paying the same interest rates every month despite the balance reducing. But we are going to adopt declining interest rates; meaning that as a client repays the loan and the balance reduces, so does the interest rate."

Sandbloom also emphasised the need for micro-finance institutions to reduce lending rates and extend their services to the unbanked areas of the country.

He said the financial sector currently has more opportunities than competition due to limited access to finance by many Zambians.

"The task before all of us, therefore, is to ensure that we make our loans accessible to people, affordable so that more and more business owners can have the benefits of accessing financial services," said Sandbloom.