Lower interest on bank loans possible without rate cap - Daily Nation

Lower interest on bank loans possible without rate cap

Thursday March 22 2018


Policymakers need to come up with policies and laws that will compel financial institutions to direct credit to the economy at market prices.

They need to create banking efficiency and other financial system reforms that will reduce intermediation costs.

The policies would spur competition in the financial system with the aim of bringing down the spread.

Lenders would be forced to prominently publish a single, comparable interest rate on loan product advertisements to help consumers to choose.

By providing the present total cash repayment that a product will receive over its lifetime, the problem of intertemporal comparison can be limited as consumers see the cash cost in comparable present price terms.

A lot more emphasis should be put on developing the non-bank financial sector to create competition for the banks.

The government should also work on community banks for financial inclusion of communities.

Like in Brazil, the government can lean on financial institutions in which it has a major stake to charge the rate recommended by the Central Bank, forcing private banks to follow suit.

It can even start a reward scheme and punish banks that don’t follow procedures and regulations by denying them the large accounts that State agencies operate in commercial banks.

THEURI PAUL, via email.