14 December 2011
opinion
I want to respond to the story entitled, ‘Interest rates rise as tight monetary policy hurts borrowers’ in the Daily Monitor of Wednesday, November 6. It is true that inflation in Uganda, now at 30 per cent, has become a menace. This has prompted the Central Bank to increase the borrowing rate to 23.34 per cent as to curb it. Therefore, commercial banks have been forced to raise their lending rates too. The final burden has thus shifted to the borrower.
It is logical for commercial banks to increase the interest rates to enable them cope with the high lending rate by the Central Bank. In doing so, however, the plight of bank customers, who had acquired loans before, should be taken into consideration. Think about a customer, who, for instance, borrowed money six months ago at an interest rate of 20 per cent.
If the loan is stretched over four years, under normal circumstances, they should continue shouldering the interest burden of 20 per cent. It is not fair for commercial banks to keep increasing the interest rates of borrowers who are already in the system claiming money has been acquired at a high interest rate from the Central Bank.
Moreover, the salaries of borrowers do not necessarily increase with rising inflation. The hard-hit casualty in this case is the borrower, who becomes a victim of circumstance. I would propose that commercial banks increase the interest rate on only new borrowers and leave out those who are already in the system. My worry is that banks may be taking advantage of the phrase at the bottom of borrowing agreements that reads ‘terms and conditions apply’.
Alternatively, banks should make it clear to prospective clients that in case the Central Bank increases its rates, the borrowing rates will be revised accordingly. This would prepare their customers for the unexpected. Whereas banks are only seeing their side of the bargain ( making profit), focusing on the plight of their clients would be a good social corporate responsibility. Without clients, banks cannot exist.
Therefore, I appeal to Parliament to make a law aimed at protecting citizens from being fleeced by banks. Short of this, borrowers will continue to ‘bleed’ at the hands of banks.
John Vianney Ahumuza,
Uganda Christian University-Mukono
jahumuza@ucu.ac.ug
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