Botswana needs credit registry

It is well documented that the level of household debt and the value of impaired or nonperforming credit is out of control in Botswana.

Industry players have been concerned that the lack of a regulatory framework further results in reckless credit and over indebtedness. An economist at Econsult Botswana, Bogolo Kenewendo says lack of a National Credit Information Registry in Botswana makes it even more difficult to track and evaluate trends in credit habits in the country.

She said recently at a National Credit Conference. Kenewendo observed that there is data available on banking institutions, whereas no data is available in the non-banking financial institutions such as micro-lenders. The Non-Bank Financial Institutions Regulatory Authority (NBFIRA) that has been tasked with regulating microlenders, among many, is relatively new and has never put a lid on the operations of micro-lenders.

Kenewendo is of the view that NBFIRA’s mandate is too broad hence hinders the organisation from focusing and scrutinising some segments of the several industries it regulates. She further added that the regulatory authority needs extra assistance in the form of a separate body that could only focus on credit regulation and data keeping.

According to Kenewendo, personal loans dominate household credit in Botswana. According to statistics, more than 50% of lending in the country goes to household lending. The 2013 International Monetary Fund (IMF) also shows concerns about unsecured household credit and risks to banks.

The local credit fraternity on the other hand, has been pushing for the introduction of a credit legislation that would promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market.

Industry players have also been concerned that lack of regulatory framework results in reckless credit and over indebtedness. Owing to the lack of legislation to govern credit in Botswana, many companies are also losing out on their profits and in some instances they are liquidated. Companies offering their services on credit are said to have experienced a decline in payment trends, which ultimately causes bad debt that is detrimental to the operations and greatly affects cash flow.

Some entities have partly adapted industry standards and best practices from neighbouring South Africa, which enforced the National Credit Act (NCA) in 2007. Kenewendo believes that Botswana could benchmark from the South African legislation.

The NCA in SA has been hailed as a dynamic statutory instrument globally and most economies like Hong Kong are adopting as it accommodates the needs of both the consumer and the credit grantor and sets clear-cut parameters of how services and or goods should be offered on credit. When speaking on why it is important to have credit legislation in place, Financial Planner and PremierWealth Managing Director, Martin Hoko, said debt levels in Botswana are too high already, and it is important for all stakeholders to appreciate that the country needs a stable financial system; that the consumer needs to be protected so that he can continue to borrow effectively and reliably. “If you have a hen that lays eggs, you must rob the nest responsibly.

If you take all the eggs at once the hen gets dejected and stops laying more eggs. You must also leave some eggs to hatch into chicks, hence more hens in the future. Lenders should not be short sighted and slaughter the chicken.” Melville Brown of NBFIRA also believes that Botswana needs to develop a set of comprehensive, and centralised laws that cover all the important aspects of contracted credit extension and collection by all categories of lending institutions and benchmark interest rates against usury limits.

NBFIRA is involved in the daunting task of registering and licensing the multi-faceted micro lending operations that are prolific in Botswana. With the approval of Micro lending Regulation a few years ago, NBFIRA has the necessary authority to begin to establish a level of formal regulatory control over this most problematic business. In this exercise, consumers are reported to have confronted NBFIRA with both the pervasive level of predatory lending practices and self-inflicted over indebtedness.

NBFIRA observed that abuses by both parties abound and the negative impact is now noticeable in this sub-sector of the Botswana economy. Although financial experts believe that the development of comprehensive credit legislation will be an important and vital component of the solution, they recommend a long-term approach to financial literacy among the populace.