High interest rates hurting local businesses

The failure by local Commercial Banks to reduce interest rates has had a great impact on the economy.

Many businesses, according to Prof Augustus Nuwagaba, are closing due to failure to repay their loans.

But many are wondering why commercial banks did not budge even when the Central Bank reduced its central bank rate to 9.5 %.

Annet Mwesigwa Kyakuwa is businesswoman operating from down town Kampala, specializing in selling and hiring gomesi for traditional marriage ceremonies.

She had a booming business until she was lured to acquire a loan from a local commercial bank.

Though she was sweet-talked by the bank agents to take up the loan, her relationship with the bank got sour during repayment.

Sometimes, the loan officers banged her door, asking for payment.

And when the Central bank reduced the its lending rate to 9.5%, Kyakuwa sighed with relief, thinking that her bank would review the terms.

But it was a reverse.

Kyakuwa is among the business proprietors in Uganda who rely on loans to recapitalize their businesses, but many people who acquired loan but they have closed business.

In Uganda the lending rates for commercial banks range between 16 and 22 percent, which is double that the 9.5 percent Central Bank Rate.

The report released by the central bank in 2015 indicated that 90 percent of the loans given by commercial banks are from people’s deposits not cheap credit from Bank of Uganda.

Prof Augustus Nuwagaba, an international consultant on economic transformation said this implies that commercial banks are making abnormal profits.

Traders are now threatening to demonstrate against the high interest rates.

Currently, Uganda has some of the highest interest rates in the region.