Reserve Bank of Malawi withdraws warning to commercial banks over unfair, high charges on loans

Consumers, mainly small businesses’ hopes to have reduced charges on loans have bern shattered as the Reserve Bank of Malawi  (RBM) has withdrawn the warning it issued to commercial banks to stop exploiting borrowers.

Following the withdrawal of the warning letter dated July 28 2016 and addressed to Chief Executive Officers (CEOs) of the commercials, borrowers will still be subjected to high charges on loans following Reserve Bank of Malawi’s decision to withdraw a warning it issued to commercial banks to stop exploiting borrowers.

In a letter titled “Capitalization of Interests by Banks” RBM Governor Charles Chuka warned commercial banks to  stop unfair and exploitative practices that resulting in borrowers paying more than they shoud have.

Chuka told all banks engaged in this practice to stop doing so within 30 days from the date of this letter.

“I wish  to draw your attention to the provisions of Sections 63 (1) of the Financial Services Act 2010 (the Act), which mandates Registrar to determine (by notice published in the Gazette) that a specified practice, pricing arrangement or fee structure in relation to financial services and products is a prohibited practice if satisfied that the practice or pricing arrangement or structure is inter alia unfair to consumers or will result in exploitation to consumers.

“Pursuant to this Section, I have made a determination that capitalization of interest on credit facilities is a prohibited practice within the meaning of Section 63 (1) of the Act. The rationale for the determination is that capitalization of interest is both unfair and exploitative to consumers as borrowers are forced to suffer interest payments on a principal amount that already has interest charges (and sometimes penalty intetests) embedded into it.

“All banks that are currently engaged in this practice or pricing arrangement are directed to ease doing so within 30 days from the date of this letter. The Registrar will also issue a Gazette notice as soon as it is published as required under Section 63 (1) of the Act,” a leaked copy of the letter, in our possession and addressed to all Chief Executive Officers (CEO), reads.

But a few days, Chuka withdrawn the warning and reasons behind the withdrawal are not known.

RBM spokesperson Mbane Ngwira equally confirmed the withdraw of the letter, but could not tell why the Governor rescinded his determination.

Likewise, Bankers Association of Malawi (BAM) declined to comment, but the Consumers Association of Malawi (Cama) wondered as i whose interest  RBM withdraw the warning against the banks’ unfair and exploitative practices.

“What does this the withdrawal of the warning to the banks mean? Does it  mean that RBM is happy to see consumers paying high charges on loans. We can not forge ahead with kind of retrogressive decisions,” Cama Executive Director John Kapito.

On his part, Indigenous Businesses Association of Malawi (IBAM) President Mike Mlombwa described the withdrawal of the letter as “very unfortunate” considering that small businesses have been hoping for reduced interest rates.

Mlombwa said with unfair charges on loans, small businesses can hardly grow their businesses.

IBAM President then asked government to intetvene by creating an enabling environment to enhance macro-economic growth and mobilization of domestic and foreign resources to support economic growth and reduction of public expenditure.

“It is high time government developed policies that would ensure a conducive environment for the smooth operation of small businesses and see reduction of interest rates for the betterment of the business community,” said Mlombwa.