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A vested interest

A vested interest

Higher loan interest rates may have helped banks back on to firmer ground, but now they're helping to crush small businesses, says Eva fernandes.

February 6, 2011 5:44 by

So 2010 may have been a tough year for most in the UAE, but from the looks of their Q4 results, banks in the UAE have surely made a comeback and, as mentioned earlier, prudent lending policies and high interest rates surely have played a significant part in that recovery.

At the same time, such policies are not so good for other businesses; like the SMEs who need credit from the banks. Though high interest rates have been essential in getting banks back into shape, if they continue to be so ridiculously high they will negatively affect the economy; SMEs particularly. Though I am not advocating loan interest rates of pre-recession levels (for fear of the creation of another bubble), neither can things stay at the current level.

Consider the manager of Passion Jewelers in Dubai, Hemant Karamchandani, who told The National, the rate of interest he paid on business loans had increased from 7 percent before the crisis to 12.5 per cent last year: “We used to borrow more money from the bank, but after the recession the interest rates have got very high, and the paperwork has become more complicated. It used to take two or three days, now it takes a month to get approved.” That 12.5 percent may be good for the bank, but it’s bad for business.

Higher loan interest rates are all very well, but when they begin to adversely affect SME’s and consequently the economy, the rate makers need to reconsider.

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