Wednesday, July 24, 2024

Consumer financial vulnerability slowly sinking in

The Bifm and FinMark Trust have been recently been hosting a series of forums to facilitate discussions between a variety of people interested in issues around access to banking and financial services.

On Tuesday, they held their third breakfast show, themed ‘Consumer credit: access, regulation and financial vulnerability’.

Victor Senye, CEO of the Botswana Insurance Fund Management (Bifm), noted that by bringing together those working in the financial sector or other relevant institutions, as well as policymakers from Government, they hoped to promote dialogue and debate around financial access issues and, over time, to help improve the policy framework and the effectiveness of economic and financial development.

He noted that the theme was chosen because lack of access to finance can make people and households vulnerable in various ways, such as not having access to insurance products that mitigate the impact of risks.

“But even if they do have access to financial products and services, households can still be vulnerable and therefore need to be educated on ways to avoid that. One particular form of vulnerability is that of over-indebtedness and one can be considered to be over indebted if, after deduction of current cost of living expenses like food, clothes, rent, socio and cultural needs, they are not able to discharge all payment obligations,” he said.

Senye asserted that over-indebtedness is considered a serious problem in Botswana because of the tendency to borrow from all possible sources, and enter into repayment commitments that take up all of one’s disposable income after meeting essential needs.
“This creates vulnerability to unexpected events such as unemployment, or high inflation, or even slow growth incomes,” added Senye.

Professor Carel Van Aardt, a research professor at the Bureau of Market Research, South Africa, explained that over-indebtedness can lead to consumer financial vulnerability, describing consumer financial vulnerability as the state and/or feeling of being exposed financially, experiencing financial insecurity and/or an inability to cope financially. He sited expenditure, income, savings, and debt as the important predictors of financial vulnerability.

“The strongest predictors of financial vulnerability are low income, living in a comparatively poorer area, living in a rural area, being divorced, having little education, being unemployed or employed part time and receiving a social grant,” he added.

He told Sunday Standard that Botswana also has an income vulnerability problem noting that it is highest in rural districts and areas.

“Kgalagadi is 45.9%, Ghanzi 41.6, Ngamiland 41.9 and the Southern district 40.7 poor. Because of this poverty state, people in these areas are likely to be income vulnerable as it means they do not have a defined source of income and probably less educated,” he said.

Professor Van Aardt asserted that first and foremost to help reduce the financial vulnerability, there should be worldwide education on finances and how to handle them.

“Most people in poverty stricken areas and households are the highest in vulnerability mainly because they are less educated. For this reason, level market education should be given to them to empower them financially, either through entrepreneurship skills management so they can become entrepreneurs. They should also be taught the importance of saving, though little it always turns out to be good,” he noted.

He further said the ability to stick to one’s budget would also help, noting that, “people are struggling to stick to their budgets. They spend more than they can afford at the time.” He went on to say even though those who are really poverty stricken are provided with social grounds, it is not sufficient to help them pull away from their vulnerability. He explained that governments should provide the basic needs and dedicate most of their efforts in financial empowering activities that the societies and households can use to better their lives in future.


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