Pricing Review: Why interest rates on loans are sticky in Africa

From the newsletter

Interest rates charged on loans for the purchase of electric vehicles have barely changed since Mobility Rising started collecting the data in May. Each month, we analyse rates charged by commercial banks as well as asset lenders in four of Africa’s largest EV markets: South Africa, Kenya, Nigeria and Egypt. Over this period, the interest rates have remained stable. 

• Loan interest rates on the African continent often change slowly and are less responsive to Central Bank rate adjustments than in developed economies due to high structural risks, significant costs of operation, and market structure challenges.

• Still, accurately tracking loan costs in Africa is difficult as several African countries have implemented risk-based lending frameworks. It means that what a bank charges one person differs from another person, based on their risk profile. 

More details

• In the four markets we analyse, Nigeria, Africa’s most populous country, has the highest interest rates that average around 32% per annum. Commercial banks like UBA, Stanbic and Zenith offer motor vehicle loans, but the impact of asset lenders like Max is growing fast. While asset lenders have much higher interest rates, they have more lax lending requirements than commercial banks, making them appealing to the unbanked. 

• In Egypt, the annual lending rate at three major banks - Bank Misr, National Bank of Egypt and Alex Bank – was 19%. Asset lender Contact charges 23.5%, the highest out of the four lenders we analysed. Loan interest rates in Egypt remain high due to the Central Bank of Egypt's (CBE) strategy to combat persistent inflation and stabilize the currency. 

• Access to EV financing in Kenya is growing, but costs remain steep. Asset financiers such as M-Kopa and Watu Credit charge annual interest rates ranging between 18% and 45%, depending on the borrower’s profile and repayment terms. Commercial banks are comparatively cheaper, typically offering loans at 16% to 18%. 

• South Africa offers a stark contrast, with a more mature financial market that has made EV financing far more accessible. Consumers can obtain loans through personal credit, specialized green financing, or standard car loans, many of which include discounts for EV purchases. Interest rates range from 10% to 28%, with some banks offering personalized rates. 

• Our analysis also shows that interest rates charged on loans in Africa are higher than those in developed regions like Europe. The reasons for this are plenty, but one of them is that many African financial sectors are dominated by a few large banks. This oligopolistic structure reduces competitive pressure, allowing banks to keep their lending rates high and less sensitive to policy changes.

• At the same time, Africa’s money markets and interbank lending are often shallow and underdeveloped. When banks cannot easily or cheaply borrow from each other, they rely on a more stable, but more expensive, base of customer deposits and capital, making rates less responsive to short-term changes. 

Our take

• Risk-based lending will intensify price disparity, accelerating adoption of used and local-assembly EVs. The risk-based lending frameworks will mean that only the lowest-risk profiles will access the competitive rates offered by commercial banks. 

• The current high-interest model of asset lenders is ideally suited for the two- and three-wheeler EV segments. These vehicles have a high income-generating potential that quickly offsets the steep interest rates. 

• To genuinely unlock EV adoption at scale, African policymakers will be forced to address the underlying structural issues such as deepening money markets to lower the banks' cost of funding and introducing measures to promote competition to shrink the excessively wide interest rate spread.