MFIs start lowering interest rates

Oct 01, 2006

MICRO-Finance Institutions (MFIs) have started lowering lending rates after the Government threatened to impose ceilings on interest rates.

By Ibrahim Kasita
MICRO-Finance Institutions (MFIs) have started lowering lending rates after the Government threatened to impose ceilings on interest rates.
There have been concerns that the MFIs are charging exorbitant interest rates, leading low income-earners to increased poverty rather than alleviating it.
The ceilings are intended to protect borrowers and promote the Bonna Bagagawale (wealth for all) Scheme.
The Association of Micro Finance Institutions of Uganda (AMFIU) said moneylenders were shifting from a flat rate to declining balance as a basis for interest rate charges, which is cheaper.
“MFIs’ interest rates are coming down steadily. Interest rates have been falling to 3% a month currently,” Caroline Tuhwezeine AMFIU’s information officer said.
“Some MFIs are shifting from a flat rate to declining balance as a basis for charges. This is equal to a price reduction of 42%,” Tuhwezeine said.
She said placing ceilings on interest rates discourages legitimate banking and drives people to the shadowy, high-cost moneylenders.
Tuhwezeine said MFIs that had extended to rural areas would close operations and return to lower cost urban lending with extra charges payable by borrowers.
“The net benefit is nil, while transparency suffers. Policy makers should strengthen sound savings and credit cooperatives and micro deposit-taking institutions to mobilise more savings,” she said.
Ends

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