By Lucky Cheelo Mwanakampwe
ABOUT BORROWING TO REPAY AN EXISTING EXPENSIVE FACILITY.
This article was in response to a comment by my good friend Hon Frank Sichone who had stated that President Hichilema had made a U-turn on the question of ceasing all manner of borrowing and maximizing internal revenue generation.
Let me give you a practical example from my banking experience.
In the bank there is what is called “Loan Refinance” and this is how it works… Customer A owes bank A and bank C a combined K150,000 at 38% interest p.a. Because customer A is highly indebted his take home salary has been reduced to K500 out of his K10,000 initial take home or net pay….
Bank B offers cheaper loans at far lower interest rates over longer repayment periods…. If customer A can borrow from Bank B a K200,000 at 15% p.a. it means he can pay off the K150,000 loan (refinance) completely and remain with an extra K50,000 to invest in some revenue generating venture to help them service the new cheaper loan.
Now here is another benefit;
Because the new loan is cheaper and payable at a much lower interest rate, customer A’s take home salary increases from K500 to K7,000 allowing them to serve money for other needy cases or areas in the family including being able to save this money for reinvestment.
The above is a practical example of how I personally while working for the then Barclays bank assisted customers who were highly indebted. I hope it helps you appreciate what is going on here when the government intends to acquire a far cheaper loan to pay back a more expensive loan. The people of Zambia will see the benefits as such an arrangement will free up the much needed resources for the social sectors.
Us who are farmers know too well that for you to get more milk from a cow, you must first feed it. It’s the same with the economy, before you can expand internal revenue collection, work on the economy, feed it and make sure it has recovered and from there you can begin reaping the benefits from tax collections.