Lending to households in Botswana must be the most lucrative undertaking if not the shrewdest move, with data showing increase in credit expansion despite the shrinking pool of workers.
Botswana’s financial system in 2018 was valued around P212 billion, yet household debts account for almost 20 percent of that. The debt could be even bigger than available figures as some debts remain unreported, besides figures from Bank of Botswana and the Non-Bank Financials Regulatory Authority (NBFIRA).
According to Bank of Botswana’s latest financial statistics, total credit extended by banks this year hit a new record, increasing to P61.1 billion in September, making it the largest outstanding credit in the history of the country. The growth is being fuelled by Households which account for 63 percent of total loans, which means households owe banks P38.5 billion.
Even more worryingly, about 68 percent of credit held by households are unsecured loans, which is about P26 billion. The largest share of household debt is property mortgage, accounting for P9.8 billion, followed by motor vehicle loans at P1.9 billion, and credit cards account for P724.5 million.
The data from the central bank shows that the large take of credit by households has not been without risks, with loan impairments also going up, a sign of debt strain on households. As of September, household strained debts stood at a cumulative P2.5 billion, representing 44.6 percent of total arrears on loans and advances held by banks.
This P38.5 billion of debts held by households is in addition to another P3.9 billion loan book from the top 20 micro-lenders in the country, which means household debt is as much as P42.4 billion, not accounting for other small micro-lenders and other unregulated lenders.
There has been growing calls in the country for the government to introduce Credit Protection Act which will guard against predatory lending, where lenders will have to be stringent on their credit policies to avoid plunging workers into debt. However, the government has yet to make pronouncement on that, instead Ministry of finance and Economic Development officials earlier this year said they are drafting the Credit Information Act which will improve access to credit.
The envisaged Bill will give a comprehensive financial information, both the good and the bad, in the hopes that it will improve access to credit extended to small businesses and citizens. It is not clear yet whether part of the Bill will deal with consumer credit protection.