Why interest rates are so high in Africa

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WHEN ROBERT MATSIKO was a young man his grain-milling business in Sheema, western Uganda, was destroyed by fire. These days, after building it back up from the ashes, he is being burned by high interest rates. To buy a new machine he must borrow from a bank at an annual rate of 22%. “You fear to do that,” he says. Many other entrepreneurs feel the same, which stops their businesses from growing.Just as Mr Matsiko funnels grain from farms to supermarkets, banks are the bridge between savers and borrowers, paying interest on savings and charging it on loans. And in sub-Saharan Africa, the gap between deposit and lending rates is higher than anywhere else. In 2017 net interest margins in the median African country were 6.8%, according to the World Bank. That healthy mark-up in part helps cover overheads that are chunkier than those in other regions. But it also allowed African banks to generate a 17% return on equity for shareholders. On that measure, Africa’s banks are the most profitable in the world—while also being the least efficient.Last year Uganda’s central bank estimated that half of banks’ interest margins are swallowed by operating costs. “Opening up a branch …

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