‘Limiting interest rates negative on MFIs’

BOZ building.

THE decision by Bank of Zambia (BoZ) to limit interest rates that licenced non-banking financial institutions can charge customers had a negative effect on micro-finance institutions (MFIs) performance last year.
In 2013, the BoZ introduced a cap on the effective annual lending interest rates that license non-bank financial institutions can charge customers, with the aim to make borrowing more affordable and equitable especially to the vulnerable micro-borrowers served by the sector.
Association of Microfinance Institutions of Zambia (AIMZ) president Webby Mate has said the capping of interest rates has put pressure on MFIs to cut costs to remain profitable.
He said in an interview on Monday that over the past two years, the sector has faced a lot of challenges due to the capping of interest rate and has also discouraged new entrants in the sector.
“Broadly, the performance of the microfinance sector has been mixed because of the introducing of an interest rate cap for microfinance institutions by Government in January, 2013 and is still in effect to date.
“The performance has been mixed because the price at which MFIs provide the service is determined externally by the central bank which puts pressure on the institutions to cut costs to be profitable,” he said.
Mr Mate said introduction of the cap has resulted in institutions closing some of their branches which are not profitable and remain with the profitable ones.
He said the closure of the branches led to some workers being laid off.
He also said the cost of business in the country remains high and limits MFIs to expand their operations, particularly in rural areas.
AMIZ is interested in MFIs which are offering enterprise loans to people who are out of employment and those that need credit to start-up their businesses to be self-sufficient, thereby reduce poverty levels.
“As an association, we are grateful to institutions that have continued with business despite the challenges because if they had completely shut down, it would have affected the locals… [We commend them for having] continued with operations in the country,” he said.

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