Finance Minister says Interest Rates must be Kept Low

Finance and the Public Service Minister, Hon. Audley Shaw, has emphasised that interest rates on loans provided by financial institutions to individuals and business entities, particularly in the micro and small sector, should be maintained at low levels.

“While I am not thinking of placing limits on interest rates, we need to lower interest rates, particularly favouring the productive, export and foreign exchange-earning sectors,” he said.

The Minister was speaking at the Jamaica Micro Financing Association’s (JaMFA) conference at The Jamaica Pegasus hotel in New Kingston on November 10.

Mr. Shaw said the Finance Ministry is leading by example in relation to maintaining low interest rates with regards to one of the financial institutions under his portfolio, which currently administers a $1-billion loan facility.

Noting that the interest rates on loans currently range between 10 and 11 per cent consequent on the tiers of markups applied at various stages, Mr. Shaw said these are related to safeguards against foreign exchange risks, among other factors.

While acknowledging that “there has to be some buffer”, he nonetheless contended that this range was “unacceptable”.

“We should put a markup of no more than two per cent and work to keep our exchange rate stable,” he said

Mr. Shaw said he would be issuing instructions that the Ministry maintain a markup of no more than two per cent.

“If we do that, we can end up lending that money to the small productive enterprises at seven per cent instead of 11 per cent,” he noted.

Mr. Shaw cited mortgages as one loan category in which financial institutions have managed to maintain low interest rates.

Noting that the rates had spiralled as high as 18 to 20 per cent in previous years, the Minister said this subsequently declined to the point where at least two notable financial entities are competing to provide home loans at 9.5 per cent.

“I am also happy to see a credit union advertising mortgage rates at 7.95 per cent. So, we are going in the right direction,” he added.

The conference, which was attended by a wide cross section of micro- and small-sector stakeholders, was held under the theme ‘MFIs: Preparing for the Challenges Ahead’.