How floating interest rate affects investors, economy

ShareSansar, February 2:

Floating interest rate, which fluctuates as per the market dynamics, has become the main obstacle to expansion of loan for the banking and other financial institutions.

According to the stakeholders, floating interest rate has impeded the expansion of loan in the productive sector despite the central bank’s policy to encourage the BFIs to mobilize more loan in the sector.

Floating interest rate is a concern even for the general borrowers as the interest rate on borrowing is subject to change as per the market condition.

In fact, institutional investors across the country have identified floating interest rate, besides load-shedding and labor-related complications, as the biggest challenge to the growth of the productive sector.

On the other hand, the BFIs want to stick to floating interest rate as they can get quick return through small-term investment on a floating interest rate. It is one of the reasons many of they do not want to go for a long-term loan mobilization, which generally calls for fixed interest rates.

“An investor would feel more confident if they are assured that the loan issued by BFIs will not be readjusted for a certain period,” says Vice-president of Federation of Nepalese Chambers of Commerce and Industry (FNCCI) Pashupati Murarka. “The BFIs would do well to at least issue loan to the investors for the sustainable projects such those related to the hydropower sector.”

The floating interest rate also hurts in the consumers in that the traders and manufacturers eventually add up the adjusted interest rates in the cost of production.

Meanwhile, the central bank is planning to enforce a provision that does not allow the BFIs to fix more than five percent spread rate by the end of the current fiscal year so that both the depositors as well as the borrowers stand to benefit from the interest rate.