Debt and Poverty
The government’s drive for poverty eradication is noble and one must commend our new president for his efforts in the right direction.
Education and job creation are probably the best remedies for poverty reduction, but one must not forget the household debt burden of most Namibians.Few months back IJG Namibia reported that 800,000 Namibians live in debt with 160,000 of these being blacklisted for failure to pay back. Yet the IJG Head of research Rowland Brown said the number of non-performing loans in the books of local commercial banks is extremely low. Brown noted that most of the defaulters stemmed from the micro-lending sector.
It is important to differentiate between the micro lending sector and the local commercial banks.
Mr Brown very well pointed out that there is no indication of systemic risk and there is a very low number of non performing loans on the banks’ books.
It is clear that the problem lies with the micro lending sector where the borrowers are usually low income earners while the interest rates are significantly higher. In other words, it is the low income earners that often without understanding fully the consequences of their borrowing actions fall into the debt trap. This only worsens income inequality and hampers poverty eradication. Unfortunately the current government regulations on micro-lending are not sufficient to stop the majority of micro-lenders from irresponsibly exploiting the poorly educated lower income client base.
While NAMFISA is trying to help the situation through consumer education programs, the truth is that most consumers do not fully understand the consequences of their borrowings, especially in the case of Micro Lenders, furniture, clothing and other household purchases on credit. In my opinion, it is absolutely vital that all employers, be it from the public or the private sector, must introduce a compulsory training on Basic Personal Financial Management for all employees. Such training must focus on lending practices and explain clearly the real cost of borrowing. No Pay Slip should be given to an employee unless he or she has gone through the basic training and fully understands the cost of buying on credit.
This is one way to stop or reduce this irresponsible borrowing as well as lending of credit for consumer goods and other non-productive assets.
From Alexander D Kirov.