Some businesses have ended up struggling and others shutting down.
PIC: Prof. Augustus Nuwagaba discussing about economic growth during a youth training at Tirupati-Mazima Mall in Nsambya. (Credit: Mary Kansiime)
KAMPALA - The current high lending rates for commercial banks have led to increased cost of business and ultimately slow business growth in Uganda, according to Prof. Augustus Nuwagaba, an international economic transformation expert.
“Currently, our banks’ lending rates are as high as 26% when our neighbors such as Rwanda and Kenya are at 19% and 14% respectively. Other countries with low bank lending rates include the United States (3.5%), Japan (0.9%) and South Africa (10.5%),” he said.
He made the comments during a youth innovation and job creation training in Nsambya, Kampala. Nuwagaba said Uganda's comparatively high interest rates affect profitability of business -- as a result, some will shut down or limp.
Nuwagaba said Parliaments in countries such as Rwanda and Kenya enacted policies that control the lending rates for commercial banks. Ugandan legislators should also emulate their counterparts, he argued.
The economy expert attributed the higher rates to the fact that the government has been involved so in internal borrowing, hence creating competition with the private sector.
“If government borrows and the private people borrow, it overpowers the private sector, hence commercial banks will not have money to lend private people. Banks will have money to buy treasury bills, why should they lend money to the highly risky private people?
Finance minister Matia Kasaija recently said banks have always kept lending rates high yet the Central Bank rates are low (currently at 9%), an issue that he said contributes to the current loan uptake in the country.
“I am going to invite your chief executive officers one of these days and we talk about the issue of high lending rates together with Bank of Uganda. Where is the problem? Should this remain the case? Think about it,” said Kasaija.
Dr. Louis Kasekende, the Bank of Uganda deputy governor, said commercial banks invest a lot in loan recovery from people, hence the high lending rates. Lowering lending rates will require the engaging of technology to replace traditional methods of delivering loans and other ways of assessing loan applications.