Softening rates could boost SMEs

Softening rates could boost SMEs
rbz building

Reserve Bank of Zimbabwe

DECLINING lending rates for individuals seen in Zimbabwe in the last quarter of 2015 will boost small to medium scale enterprises (SMEs) whose operators finance their businesses from personal loans, the Zimbabwe Economic Policy Analysis and Research Unit (ZEPARU) has said.
In an analysis of interest rates released recently, ZEPARU said lending rates to individuals declined to 15,05 percent in July 2015 from 15,64 percent in May, making it cheaper for individuals to borrow.
At the same time, lending to the corporate sector increased during the period to 11,65 percent in July from 11,08 percent in May as demand for funding in industries rose after the liquidity crisis on the markets deteriorated.
Lending to individuals could have softened after thousands of workers lost jobs as companies closed or retrenched, according to analysts.
This slowed down demand.
ZEPARU said this decline in lending rates to individuals would help SMEs access funding as the majority of operators in the sector did not operate bank accounts for their businesses but used their individual borrowings to run their companies.
About 60 percent of Zimbabwe’s economy is estimated to be in the informal sector, with over US$3 billion circulating in that sector alone.
“The real weighted lending rates for both corporate and individuals have generally been higher in 2015 than in 2014. In 2015, the lending rates for corporate have been higher, which is likely to be associated with very strong growth in real credit demand. On the other hand, lending rates for individuals slightly declined in June and July 2015 after higher levels in April and May.”
“There seems to have been some narrowing in the gap between corporate and individual lending rates in 2015. While corporates lending rates increased over the review period from 11,08 percent to 11,65 percent, individual rates declined from 15,64 percent to 15,05 percent. The convergence of the lending rates would bring some fairness to small business owners who use personal credit to finance their enterprises,” ZEPARU said.
However, the prevailing rates showed a significant decline from as high as 30 percent in August last year when banks hammered a deal with the Reserve Bank of Zimbabwe to reduce them starting in October 2015.
“In view of high interest rates currently obtaining in the economy, there is scope for reduction to ensure that lending rates are supportive of economic recovery,” the central bank governor said at the signing of a Memorandum of Understanding with the Bankers Association of Zimbabwe.

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