Investors demand for cut on bank interest rates

Interest rates in Rwanda range between 12 to 16 percent depending on the client’s bargaining power and the business venture to be undertaken- James Musoni.

Interest rates in Rwanda range between 12 to 16 percent depending on the client’s bargaining power and the business venture to be undertaken- James Musoni.

Kenya-Rwanda Business Association has requested governments in the East African Community (EAC) to reduce interest rates on bank loans, as a way of controlling the impact of the global financial crisis.

The call was made to the Kenyan President Mwai Kibaki during his three-day state visit to Rwanda last week.  Kibaki held a working breakfast meeting with members of the private sector at Kigali Serena Hotel Tuesday.

Investors requested governments to lower interest rates, arguing that high interest rates affect investments adversely. They argued that interest is a cost which leads to less loan demand and subsequently less investment.

“These high interest rates (and) are raising the cost of capital and hindering investments,” said Wachira Mahihu, Chairman Kenya Rwanda Business Association.

With the global economy heading into a recession, it is expected that African economies will experience a fall in their export trade values and volumes. Japan and the eurozone are already in a recession. 

As a result of the recession in the global economy, Foreign Direct Investments (FDIs) in the region are expected to drop which meaning interest rate cuts would act as an alternative to increase investments by lowering the cost of capital to promote local investments.

However, some people speculate that the global financial crisis could force investors in affected economies to diversify their investments into Africa.

“It is a good idea, but the main challenge in the region is liquidity,” Rwanda’s Minister of Finance and Economic planning James Musoni said.

He said, the demand for credit from the private sector is available but the supply from commercial banks is not enough. 

“But in Rwanda we have completive interest rates in the region,” Musoni said.

Interest rates in Rwanda range between 12 to 16 percent depending on the client’s bargaining power and the business venture to be undertaken.

Musoni said that interest rates vary depending on the source of capital for commercial banks and that it also depends on the inflation and the lending rate of the central banks.

He also said that the government of Rwanda gives Rwf3 billion to the Development Bank of Rwanda every year at an interest rate of two percent aimed at helping exporters to access cheap funds, an incentive that could boost Rwanda’s exports during these times of financial crisis.

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