Longer term saving mobilization to curtail high interest rates

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Mobilizing for long term savings is likely to back up commercial banks to have liquidity for a longer period at low deposit rates of which they can also lend to the private sector atlow interest rates.

Francois  Kanimba, Minister of Trade and Industry says that   boosting long  term  saving  mobilization instruments  such as the  insurance  and the  pension sectors would help the  commercial  banks have long term credit that they  can lend  to   businesses.

“ We are quite still very  far in terms  of  mobilizing   for  long term  savings  instruments ,  I think there is need  to improve on  these,” said Kanimba

For example the pension sector which is   vital in increasing domestic long term saving  covers  only     Less than 7 percent   of the population while the  insurance sector is   struggling to entice more  people to take up products.

But  Kanimba   is optimistic that the  new  pension  law  is   likely  to  liberalise the  sector  which will   bring in more  private  investors handling  different  pension schemes  thus  increase its penetration  and boost  long  term  savings.

“We also have to look at   increasing financial savings from people as one way of  also  ensuring that the  our financial  Institutions  have enough liquidity to lend  to businesses,”   he  added.

As long as commercial banks, experts argue   get cash at   low deposit rates and for a long term would help them lend   to the private sector for a longer which eases   bot the repayment as well as interest rates.

According to Central bank the average deposit rate which   is the interest rate paid by financial institutions to deposit account holders stands at 7.3 percent while the   lending rate which the borrower pays the financial institution stands   at 17.4 percent.

The implies that   for   banks to remain profitable, they have to   raise the interest rates higher to get the  interest  to pay  to the  depositor  as well as  avert the risks of  defaulting from borrowers  and also operational costs.

“As some people don’t pay unfortunately it increases the cost of doing business,” James Gatera, Chief Executive Officer Bank of Kigali said

This comes at the time when the private sector is complaining of high interest rates that make it hard for them-private sector to access credit to boost their businesses.

In a bid to boost lending to the private sector, the Central bank   lowered its Key   repo rate   to 6.5 in the first six months of the year up from 7.5 last year.

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