At a staggering 8.9% per month, which translates to 106.8% per annum, interest rates on mobile money (MoMo) loans are suffocating borrowers, turning what could be a lifeline for micro enterprises into a financial trap. Many small businesses, desperate for working capital, find themselves overwhelmed by high monthly charges, with some lenders charging up to 8.9% per month. Instead of receiving the full loan amount, borrowers now face additional processing fees, leaving them with less money while still having to repay the full principal and exorbitant interest.
The promise of MoMo loans could have been a game-changer, offering micro enterprises a chance to grow and scale. But these predatory rates are pushing many to avoid the facility altogether, making it a tool for individuals rather than a business enabler. Borrowers who once saw MoMo loans as an opportunity now find themselves trapped in a cycle of debt, unable to keep up with the suffocating charges.
Lenders defend the high rates by citing a high default rate. However, many argue that it’s the sky-high interest itself that leads to defaults, leaving borrowers unable to meet their repayment obligations. This cycle of debt and default raises an important question: where is the Bank of Ghana?
While the Central Bank has made strides in regulating traditional bank loans through the Ghana Reference Rate (GRR), which helps moderate lending rates, it seems the micro-credit sector has been left unchecked. This neglect is especially harmful, as microloans are often targeted at low-income individuals and small businesses—precisely those who can least afford the current rates.
Market observers are urging the Bank of Ghana to turn its attention to this growing issue. As it stands, MoMo loans are more of an extortion than a helping hand for micro enterprises.
The situation calls for a reassessment of lending practices. Micro-credit institutions could easily introduce credit scoring systems to reward responsible borrowers with lower interest rates, but instead, they continue to charge astronomical rates, even for good borrowers.
While digital payment platforms have seen significant growth in Ghana, this growth has yet to translate into affordable credit for small businesses. Without access to reasonably priced loans, Ghana risks fostering consumption over production—a recipe for rising inflation and economic stagnation.
Source: Accra Street Journal
