Editor,

RE: "Banks have left us between a rock and a hard place” (The New Times, November 25).

Dear Mr. Ntayombya,

To me it’s always a great pleasure to read your opinions. I am sure I am not the only one who can be thankful with the way you (sometimes) develop a point with a more mundanely and easy way for people with novice experience to understand.

With no offence on the issue of the rates of interest being offered at the banks in Kigali, I guess there is more discourse needed as it is central to the economic functioning of society. This naturally means more inputs from professionals in fields such as politics (lawmakers), economics, finance, law and ultimately business.

Modern economies are underpinned by exchanges that are mainly represented in monetary (or money equivalent) terms in a more or less circular manner, thus the model is summarized in a schematic "circular flow of income”.

As novice as I am myself, I am trying to justify Governor John Rwangombwa’s rather timely proposition.

Banks (financial intermediaries in their functional role) depend principally upon the regulatory scheme granted to them as sole negotiators of economic exchange instruments, combined with the often given monopoly position in the exploitation of "information asymmetry” which is the biggest property in the workings of those exchanges.

Empirically, Adam Smith proposes that the sole driver of the very incessant interplay of those exchanges is the human faculty of "want”. In today’s terms the "want” can be squarely equated to words such as "need” or even "greed”.

To what extent then in the financial sector should be the scope of government’s interventionism programme supposed to be, in a fast growing and integrative market economy; faced with consumer trends that are coupled with hard choices in constant technological and product innovations?

I suspect this is where Rwangombwa is trying to make a point. Bluntly put in another harsh way, mind me dare to say, this could go as: "Know what you consume. Know what you want and at what price!”

It is arguably rude to qualify others as dull but basic conventional wisdom in finance has put it that it is market sentiment that primarily causes prices to diverge (at times far) from what fundamental analysis would dictate to be the intrinsic, or true value of a given asset.

Thus, in a way the more archaic principle of "demand versus offer” as a determinant to price has never been as much as today so much dependable on externalities, not forgeting that these externalities may be caused by unscrupulous market manipulators, rather than the so-called "uninformed investors”.

It is, nonetheless, fair to say that government market intervention is still readily available (although in OECD economies such power is poised to be increasingly challenged by conventions; the like of TiSA agreements, for example). Intervention might be even more enhanced especially when it comes to the real estate industry, not least of which reasons is the fact that the industry itself is considered as a major platform for GDP’s outlook.

A comparative study is relatively easy to make across the region or among a cross-section of markets both in bank rates and spreads. The former being high may be an indication of high central bank interest rate (impacting on inflation hence demand); which is naturally hard to lobby against but has clear effect on wealth (purchasing power). Whereas the latter I suspect might be a reflection of effect of a "diseconomies of scale” hence with the need for expansion and/or efficiency, among others.

The question is what the consumers’ rights protection organisation is capable of or not in this respect as with regard to protecting consumers.

Augustin Dufatanye