High interest rates are hampering the economy

Early this year, the government twice reduced the interest rate that the Central Bank charges commercial bank when it lends them money (Repo), bringing it down to 6%. The move was meant to encourage banks to give out more loans to the public and stimulate the financial sector. The logical sense would have been seeing the interest rates in commercial banks dropping due to the government windfall, but that is not the case. Even though banks have increased the volumes of credit to the public, their interest rates remain prohibitively high. Simple loans can cost as high as 19% per annum in interests, and if one was to factor in other charges the charges hit the roof.

Early this year, the government twice reduced the interest rate that the Central Bank charges commercial bank when it lends them money (Repo), bringing it down to 6%.

The move was meant to encourage banks to give out more loans to the public and stimulate the financial sector.

The logical sense would have been seeing the interest rates in commercial banks dropping due to the government windfall, but that is not the case.

Even though banks have increased the volumes of credit to the public, their interest rates remain prohibitively high. Simple loans can cost as high as 19% per annum in interests, and if one was to factor in other charges the charges hit the roof.

The high interest rates have discouraged many businesses that would have fueled the country’s economy, but commercial banks seem to have other ideas. 

It is a welcome development that they have now opened to the idea of long term financing, but they are still jittery when financing some sectors they deem too risky.

There is need to build trust between financial institutions and the private sector. That could begin with banks charging reasonable rates which in turn would attract more customers.

Otherwise with the current state of affairs, it should not come as a surprise that many new banks have entered the market; banking in Rwanda is a profitable venture.

Central bank regulations notwithstanding, there should be rooms for these banks to listen to their clients and ease the financial burden, the same way the government regularly reduces the Repo rate.

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