BY BONNIE MODIAKGOTLA
The Ministry of Finance and Economic Development is in the process of drafting the Credit Information Act which is expected to improve access to credit.
Minister Kenneth Matambo said the envisaged Bill will give comprehensive financial information, both the good and the bad with hope that it will improve access to credit extended to small businesses and citizens. It is not clear yet whether or not part of the Bill will deal with consumer credit protection.
The credit market in Botswana is highly lucrative yet shadowy, and in the process has attracted criticism – with some observers saying it’s littered with predatory lending. Part of the criticism stems from money lenders extending credit to people who could barely afford loans, resulting in low take home pay.
Bank of Botswana’s most recent financial statistics show that from January to November 2018, commercial banks loaned out P58.4 billion, an 8 percent annual credit growth. Households debts during the period reached P34.9 billion, representing about 59.7 percent of commercial bank loans. The share of credit to businesses was P23.5 billion or 40.1 percent.
The current household debt is the largest in history of the local banking industry, and households are not showing any significant waning appetite for loans. Pundits have sought to link the high levels of household credit to stagnated wages, in combination with poor financial literacy, leaving workers to the mercy of predatory lenders.
The major question then becomes, where are these funds channeled to? While one cannot answer with certainty, the financial statistics from the central bank becomes a starting base to unravel this worrying appetite for debt.
Of the outstanding loans and advances, P21.7 billion or 65.3 percent of total household debt is for personal advances which exclude loans for motor vehicle, property and credit cards. In a much more relatable term, this gigantic debt is what is commonly referred to as “unsecured loans”.
The second biggest portion of household at P9.6 billion or 27.5 percent went towards property loans. This is one sector that has shown consistent growth over the years, with the value of the loans increasing due to the high valuations of houses especially in Gaborone. Households are also burning cash through motor vehicle loans which account for P1.8 billion or 5.2 percent. Trailing behind is credit cards at P715 million or 2 percent of total household debt.
The credit information from Bank Botswana is only a piece of a larger credit market, which includes regulated and unregulated money lenders. According to the Non-Bank Financial Institutions Regulatory Authority (NBFIRA), there were about 324 registered non-bank lenders in 2018, up by 4 percent from previous year.
The NBFIRA 2018 annual report shows that non-bank lenders are made up of 214 micro lenders, 76 Pawnshops, 29 Finance companies and five leasing companies. The regulator revealed that from the top 20 micro-lenders, loan book value increased 12.5 percent from P3.2 billion to P3.6 billion in 2017. This means other credit information goes unreported, and as a result the true value of the credit market is unknown, but what is certain is, Batswana are binging on loans, either from commercial banks or non-bank lenders.
While Matambo says his pending Credit Information Bill will improve access to both negative and positive financial information, the minister said they have also “commenced initial processes of undertaking a FinScope Survey” to be concluded in 2019/20.
“This is a nationally representative survey on the demand, access, and use of financial services, which is an initiative to promote financial inclusion and access to financial services,” said Matambo.
According to the last FinScope Survey done in 2014, more than 68 percent of the adult population is formally served and a further 8 percent uses informal services, while 24 percent is totally excluded.
This is an improvement from the 2009 survey, which showed that 59 percent of the adult population had access to banking and financial services, 33 percent were excluded, and 8 percent (unchanged) had access to informal services. Assessed by location, the 2014 survey shows that 87 percent of adults in urban areas enjoy access to finance compared to 71 percent in rural areas.