Interest Rate Capping Bill back in Parliament; this time moved by DPP MP Namalomba

MP Shadric Namalomba

* Was first moved by MCP’s Dowa West Alexander Kusamba Dzonzi in 2018

* Namalomba pledges to tackle some of the weaknesses of the previous Bill

* And to give direction to what this particular Bill will focus on

* The Bill has since been referred to Parliamentary Business Committee

By Duncan Mlanjira

The Interest Rate Capping Bill which courted controversy when it was moved by then then opposition Malawi Congress Party (MCP) legislator for Dowa West, Alexander Kusamba Dzonzi in 2018, has resurfaced in Parliament.

This time it has been moved as a private member bill by Member of Parliament for Mangochi South West, Shadric Namalomba, of the Democratic Progressive Party (DPP).

Yet it was the same DPP that shot down Kusamba Dzonzi’s motion when the DPP was on the government side of Parliament.

It was then referred back to Parliamentary Business Committee for more scrutiny and Namalomba brought it back to the august House and had asked to present it on Thursday but reports indicate it has since been referred to Business Committee as well.

The Motion says: “Having observed the exorbitant interest rates on loans obtained from banks and other lending institutions have resulted in failure by most citizens of the Republic of Malawi to service the loans and in some cases forfeiture of property, this House resolves that a Private Member’s Bill that prohibits all commercial banks and all finance lending institutions from recovering more that 100 percent of the principal loaned amount, be drafted and introduced in the House for consideration.”

Namalomba further said in the communication to the Speaker Catherine Gotani Hara and the Business Committee of Parliament that he be allowed to present a few comments on the motive behind this Motion and to justify why there is need to come up with this law.

He also says he shall tackle some of the weaknesses of the previous Bill that was introduced in 2018 to give direction to what this particular Bill will focus on.

When the Bill was initially tabled by Kusamba Dzonzi, it was riddled with controversy within the august House that eventually saw MCP and People’s Party (PP) boycotting its session in protest over suspected tactics by the then ruling DPP, accused of trying to derail it.

Tactics to derail the tabling of the Bill started emerging when the social media went awash with reports that Bankers Association of Malawi (BAM) invited some MPs to a business breakfast meeting in Salima where they were allegedly enticed with over K800,000 each as fuel re-imbursement in a bid that the MPs should shoot down discussion of the Bill.

It was also reported that Kusamba Dzonzi was also ‘handsomely paid by unnamed sources to move the motion’, an allegation the legistrator vehemently denied.

Then a WhatsApp message — which meant for the MP’s eyes only — was leaked and went viral on social media, saying the opposition then was trying to justify that they are concerned with the welfare of rural masses at heart but in essence they are just trying to gain a political mileage by bringing in controversial private members bills.

And the leaked message continued to ask MPs to boycott the day’s sitting in order for it to be shot down and when Kusamba Dzonzi was set to move the motion, DPP’s Blantyre City Central MP, Themba Mkandawire stood on point of order and asked for Standing Orders to be waived and have government Ministers answer questions from legislators.

Yet Thursdays are reserved for private members motion but DPP MPs unanimously said it should be government business to answer questions first, effectively blocking Kusamba Dzonzi  from moving the motion.

When the Speaker ordered for division vote the government side won and in protest MCP legislators trooped out of the house followed by those for PP.

The original Bill targeted setting up a ceiling of interest rates charged by banks to a maximum of 5% above the Policy Rate set by the Reserve Bank, and also seeks to regulate and regularize setting up a ceiling of total interest charged to customers by banks to not exceed the capital borrowed.

It also aimed to set up a floor of interest paid to depositors to the higher of 2% above ruling inflation rates or 5% below the lending rate.

And this is reported to have made banks go into panic mode, claiming it will kill their industry and crash the entire economy.

Commenting on social media, strong national issues critic and analyst Onjezani Kenani started a debate then by saying: “I have been reflecting on the interest-capping law. I now realise we need to be very careful before taking the plunge. We must learn from others. From Kenya. From Zambia.

“If not well-designed, the cap will lead banks away from lending to small borrowers. Kenya tried to impose the law from September 2016. Within a year, President Uhuru Kenyatta — whose signature brought the law into effect — reversed the conviction he shared with the legislature, conceding that the amendment did not have the desired effect.

“You see, banks ‘buy’ deposits and ‘sell’ loans, earning the difference. Those deposits and loans are bought and sold at an ‘interest rate’. Additionally, the buyers of those loans are businesses and the government.

“The government is a less risky borrower than the small businesses and also has the capacity to be a bigger player in the loan market than several businesses put together. Because banks spend a lot of time and money vetting and tracking borrowers, they will prefer to lend to the government even if both the small businesses and the government were paying the same interest rates.

“In the end, it’s the small business borrower who gets hurt by the decision to cap interest rates – which is an irony, because the bill supposedly intends to protect the very same small business owner from extortionist rates charged by banks. Now Kenya is having a rethink. Zambia also attempted to do the same but reversed the decision in 2015.

“It is a populist decision, I know. On the face of it it makes a great deal of sense to shield the poor from extortionist bank rates. But, as already said, capping does not mean banks will automatically be lending to everyone. In the end, each bank will want to lend to the least risky borrower, i.e. the government or big conglomerates. Small to medium enterprises will suffer, including all those bank mkhonde-dependent businesses,” Kenani said.

In response, Tasokwa Mchawe had opined that the Bill is aimed at punishing banks and rewarding the borrower and depositors.

“We are generally an economy that has experienced higher levels of inflation and using inflation as a trigger point for all the interest rates without considering other variables is also flawed,” he had said.

Charles Chinkhuntha was of the opinion that there was need for a detailed study first to establish the Malawi case on interests, saying “to what extent can we lower/increase the rates and at what cost for each decision made.”

Times Group’s Managing Director, Leonnard Chikadya chose to differ, saying every economist policy maker in Ministry of Finance and Reserve Bank knows the source of the problem — the “Government’s high appetite to borrow from banks to finance their funding gap (albeit to cover useless political projects not covered by taxes and donor support).

“If Government reduced borrowing from banks, say by 50% (a mere dream!!!!), banks that are collecting those deposits will come to you and me running at lightening speed to offer us all to borrow at the lowest interest rate to underwrite interest to their depositors.

“We have a living example which we all seem to forget conveniently. Some of you will recollect that bank relationship managers were busy visiting corporate clients and some individuals to offer loans you never solicited during the years 2005 to 2008 when [former] President late Bingu reduced Government borrowing and the country benefited from cancellation of foreign debts under Highly Indebted Poor countries, Malawi was the beneficiary of this Father Xmas lottery!

“Government has to fix its Fiscal discipline and there will be no need for interest capping. But are we ready for this bitter pill? The symptoms do not give pointers in that direction. Now we have to pay free allowances to those over 65 years. We are a lost Nation that is refusing to change status quo,” Chikadya had said.

Another commented: “There are countries which have successfully implemented capping and is it not more plausible to learn from those that have failed and capitalize from those that have succeeded in this. Other than wholesale condemning the bill, I would suggest we learn from the mistakes and perfect our own.”

Manuel Funsani said the inflation need to be successfully tamed first and to stop the government from borrowing from commercial banks — the you can talk about interest capping otherwise this could be an exercise in folly”.

Gervasio Kaliwo had said in a Republic every aspect of socioeconomic life has a law governing it and had Malawian banks not been a cartel, the government would have allowed them to self regulate.

“Countries in Europe, Canada, Australia and Japan all have some kind of banking laws. We need a regulatory  framework for the Malawi banks. Check this, at one point  the banks were paying 10% for deposits and were charging 45% on loans.”

Michael Mwasikakata said there is absolutely no justification for such exorbitant prices for capital, adding that the law alone will not solve the problem.

“Banks are colluding to charge huge interest rates and make super supernormal profits at the expense of borrowers and at the expense of the country setting on a real growth path.

“When people start quoting the basic rules of supply and demand to justify such gaps between deposit and lending rates, we should be very worried,” he had said.