The Reserve Bank of Malawi (RBM) has been asked to consider enacting a law that will put a cap on the amount of money that could be collected on non-performing loans.
The development comes at a time when many Malawians continue to lose property such as houses and motor vehicles to commercial banks after defaulting payments on outstanding loans.
The common law in Duplum Rule provides that interest on a debt will stop accruing once the total amount of interest arrears accrued equals the outstanding principal debt.
The rationale behind this rule was that debtors who were behind on payments should not be at the mercy of never-ending interest charges and ultimately be in a position where they are owing more than twice the amount of their capital debt.
Therefore, once the total amount of interest equal to the principal debt has been reached, a lender is prohibited from continuing to charge interest.
Indigenous Business Association of Malawi (Ibam) president Mike Mlombwa said in an interview that the government and RBM should consider enacting a similar law in Malawi to protect borrowers who are forced to pay much more than the amount borrowed after defaulting.
He said the prevailing high interest rates coupled with a highly hostile business environment in Malawi has resulted in many borrowers defaulting on their loan repayments.
“It is not by choice that the borrowers default but circumstances sometimes push them into that,” said Mlombwa.
“This has ended up in them paying more, sometimes even five times, the amount borrowed, which is very unfair. It is high time authorities intervened to protect people from needless loss of their property,” said Mlombwa.
He cited an example of Kenya where he said there is a ceiling on the amount of money that could be recovered on a nonperforming loan.
Commenting on the proposal, Reserve Bank of Malawi spokesperson, Mbane Ngwira, said it was worthwhile for RBM alongside various stakeholders in the country to look at the merits and demerits of the Duplum Law legislation in Malawi.
“We currently don’t have such provisions in our banking regulations,” said Ngwira.
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