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Civil society want interest rates curbed

By Francis Emorut

Added 3rd September 2016 10:21 PM

In principle, government intervention to regulate the market should be in response to political, economic, social and cultural pressures

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In principle, government intervention to regulate the market should be in response to political, economic, social and cultural pressures

Civil Society actors have called on Government to curb the high interest rates to attract small and medium enterprises (SME) and farmers to borrow more and expand their businesses.

Under their umbrella Civil Society Budget Advocacy Group (CSBAG) they argued that if the interest rates are not curbed the small medium enterprises (SMEs) will not have the capacity to grow and hinder the increase of household income.

"We are concerned that if there is no action taken to curb interest rates, the cost of doing business in Uganda will remain high and uncompetitive in the region," Julius Mukunda the coordinator of CSBAG said.

The current interests rates in the country range from 24% to 30% charged by the commercial banks.

In a news conference held in Kampala the CSOs argued that the mandate of government is to protect its citizens and consumers from circumstances which are beyond their control like market failures.

"In principle, government intervention to regulate the market should be in response to political, economic, social and cultural pressures that are likely to negatively affect the ability of its citizens to live a decent live and for government to achieve its development goals," they stated.

The civil society actors cited Kenya where President Uhuru Kenyata defied the position of the Central Bank of Kenya and the industry to sign into law legislation that imposes limits on bank lending and deposit rates.

Mukunda explained that under the new Kenyan law lending rates will be capped at 4% points above the CBR rate while deposit rates must be at least 70% of the bench mark rates.

The CSOs outlined the importance of capping interest rates to protect Ugandan borrowers as this will enable among others make the cost of borrowing cheaper, will encourage SMEs to take out loans to finance greater spending and investment which is an ingredient of inclusive growth, will increase disposable and discretionary income.

 

"This will leave households with more disposable income and should cause a rise in consumer spending on other goods which have a multiplier effect in the real economy," Mukunda stated.

Mukunda who was flanked by Carol Namagembe the program associate and David Walakira the policy budget specialist also observed that the affordable rates from regulated institutions reduces the risks associated with loan sharks and also encourages financial inclusion.

The civil society appealed to commercial banks to support the capping of interest rates as it will increase the number of borrowers and they will make a good return on investment.

The CSOs pledged to work with likeminded MPs of the 10th Parliament to sponsor a Private Members Bill seeking to amend the Financial Institutions Act specifically to have interest rates capped at 5% (+/-) and cap the deposit rates at 50% of the CBR.

They also want the amended Act to make it mandatory for commercial banks to contribute 0.5% of annual profit to a rural financial inclusion fund that will finance promotion of financial literacy and ensure that similar products are handled in a standardized way across all providers as well as establishing the National Consumer Tribunal (CT) to adjudicate on consumer complaints and disputes with loan and credit providers.

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