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{Diminishing interest}.. A government trend to increase development rates
Economical 01/11/2024
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Baghdad: Haider Falih Al-Rubaie
Economic affairs specialists welcomed the government trend that will oblige banks to set decreasing interest rates on loans, stressing that this could achieve a number of important economic factors, including increasing development rates and raising the purchasing power of the beneficiaries of these loans, especially employees, retirees, and those covered by the Social Protection Law.
According to specialists, the high interest rates on loans imposed by banks according to the increasing interest method have burdened the beneficiaries of those loans, especially those with limited income, who are forced to pay half the value of the loan sometimes in the form of interest, which led to limiting their purchasing capabilities, and thus this contributed The banking method significantly increases poverty rates, according to specialists, who also called for the need for the central bank to intervene decisively in determining the interest rates charged on loans.
The welcoming economic stances came after the government decision to limit the “drain” on the financial capabilities of loan beneficiaries, as the Prime Minister, Muhammad Shiaa Al-Sudani, instructed to reconsider the calculation of the interest paid on loans granted to citizens.
Prime Minister Muhammad Shiaa Al-Sudani directed the Ministry of Finance, the Central Bank, and government and private banks to reconsider calculating the interest paid on loans granted to citizens, using the simple decreasing interest method instead of the cumulative method, which burdens the borrower with burdens on them.
This decision, according to the economic expert, Dr. Ali Daadoush, during his speech to Al-Sabah, could enhance the financial solvency of three of the most important segments of society, namely the segment of employees, retirees, and those covered by the Social Protection Law, stressing that this approach is sufficient to achieve a package of important economic achievements, which stands in Its introduction is to give a great advantage to those with fixed income, as the decision, once activated, will reduce the interest paid to become gradually lower until the loan is paid in full.
The expert, Daadoush, gave an example of how to apply decreasing interest if it was actually implemented by banks. He pointed out that, for example, if the loan amount is 10 million dinars, with an interest rate of 10%, and the repayment years are 5 years, then 200 thousand dinars are deducted per month. But next year the interest will be paid on the amount of 8 million and so on, indicating at the same time that this approach is consistent with the government program in one way or another as it is concerned with serving a large segment of employees and retirees who have been burdened by the cumulative interest.
Despite the positives listed by expert Daoudesh, researcher and member of the Iraqi Economists Association, Muqdam Al-Shaibani, believes that the decision has other advantages related to increasing rates of sustainable development in Iraq.
Al-Shaibani told “Al-Sabah” that “the government’s direction to reconsider calculating the interest on loans granted to citizens and using the simple decreasing interest method will achieve a noticeable and rapid increase in the development process, which will reflect positively on the economic reality of the country through employing the workforce, reviving the markets, and operating many means.” Transportation that will contribute to supporting construction, trade and other development areas.
Researcher Al-Shaibani also believes that the rest of the loans should be included in the government decision, as industrial and agricultural diminishing loans can play a vital role in accelerating and increasing rates of economic development, and that financing projects with their various uses is sufficient to eliminate unemployment and improve the level of per capita income from the gross domestic product to achieve well-being for citizens. .
Specialists had previously welcomed, during their talks with “Al-Sabah”, the directions of the monetary authority in the country, which aim to increase rates of sustainable development, stressing that the launch of the Central Bank of the National Lending Strategy could achieve a package of important economic steps, the forefront of which is the elimination of... Unemployment, poverty, and moving the wheel of private sector work.
The initiative announced earlier by the Governor of the Central Bank, Ali Al-Alaq, according to the opinions of specialists, constituted a starting point towards nourishing economic stability and contributing to growth, prosperity and creating job opportunities, especially since this strategy is directed to supporting small and medium enterprises, which can absorb thousands of workers. .
Al-Alaq announced a plan to build a national lending strategy that will come into effect at the beginning of this year, 2024, stressing that Riyada Bank will be a base for launching and financing small and medium enterprises, and that its total initiatives have reached more than 12 billion dollars.
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