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A MWINILUNGA farmer who embarked on pineapple production after entrepreneurial training, receives Senior Chief Kanong’esha (fourth right) and World Vision Zambia (WVZ) national director Mark Kelly at her stand during the projects’ handover ceremony in Mwinilunga district recently. PICTURE: MELODY MUPETA

Low lending rates spur economic growth

WITH high unemployment levels in Zambia, most people opt to venture into entrepreneurial undertakings to sustain their livelihoods. However, these people fail to expand their enterprises essentially due to lack of capital, which they cannot access as they have no collateral which banks need to lend out their money. Secondly, people seeking capital cannot manage to borrow from commercial banks whose lending rates now almost reach 30 percent. This is the premise upon which President Hakainde Hichilema yesterday called on commercial banks in the country to consider reducing lending rates so as to provide cheaper capital to businesses. Going by the head of State’s view, financial institutions must work towards cutting down the cost of borrowing so that more people can have access to finance and grow their enterprises. “Can we work on reducing the lending rates? We do our part as Government, the Bank of Zambia also does its part, and you [commercial banks] also do your part.
“We must work together. As we provide macro-stability, you must also reduce the ticket of lending so that we lend money to more people,” Mr Hichilema noted. The head of State made the call when he graced the official opening of Indo House, the new corporate head office of Indo Zambia Bank. President Hichilema was apt when he urged commercial banks to provide cheaper capital to finance more businesses as this will help create more jobs for Zambians and stimulate economic growth.
Reducing lending rates significantly contributes to economic growth of any country principally because when people borrow from financial institutions, they invest in expanding their businesses. As these businesses grow from small to medium and eventually to the large-scale level, they create jobs for fellow citizens thereby supplementing Government’s efforts to have many citizens employed. When consumers pay less on interest, this gives them more money to spend, which can create a ripple-effect of increased spending throughout the economy. Businesses and farmers, for example, also benefit from lower interest rates because low lending charges encourage them to make large equipment purchases. And since lower lending rates incentivise borrowing, businesses can make investments in equipment, real estate, and other expansions that can help raise stock prices.
Lower interest rates can help trigger economic growth because people have more money to spend. It can also lead to lower inflation, which is when prices of goods and services go down. Reduced lending rates for businesses mean increased production of goods and creation of new jobs for the people who produce, sell and deliver the goods. When lending charges are high, it becomes more expensive to borrow money; when they are low, it is less costly to borrow from financial institutions.
Also, falling interest rates should be good for share prices because they boost valuations and make debt more manageable. Lower lending rates would be especially good for growth stocks with more distant earnings streams. Further, low lending rates entail more spending money in consumers’ pockets. This also means consumers may be willing to make larger purchases and borrow more. This, in turn, spurs demand for household goods. This is also an added benefit to financial institutions because they are able to lend more. Therefore, the call by President Hichilema for reduced lending rates in Zambia will have innumerable paybacks should commercial banks positively respond to the plea.