Cash loan assets reaching for N$5 billion as Januworry woes hit households
January is traditionally the month in which so-called cash loans provide a lifeline for struggling families following the expenses of the festive seasons. Referred to by the industry as payday loans, this alternative form of bridging finance plays a crucial role in the financial endurance of private households.
A recent report by the Financial Institutions Supervisory Authority (NAMFISA) on micro-lending illustrates the enormous dependence of both private individuals and micro enterprises on short-term cash loans. This activity in the financial services sector was unregulated until 2010 and then estimated at a few million dollars. When the first data became available, the cash loan industry posted assets of almost N$5 billion.
This underscored the importance of this type of financing but it also revealed a glaring financial risk if it remained unmanaged and unregulated. Micro-lenders were then required to register with NAMFISA and comply with a number of regulations, in part to protect the interests of clients.
In the latest report, NAMFISA reviews the state of micro-lending for the first quarter of last year. This provides a limited base of comparison for this January as it is widely expected that the average household or micro-enterprise is in a worse financial position now than a year ago.
During the quarter, the value of new micro-loans came to N$710.9 million, a revealing figure indicating that new loans add about N$3 billion per annum to the industry’s assets. But the cash loan sector does not grow at this rate per year since the basis of most of these loans are very short-term.
However, NAMFISA makes a distinction between two categories of loans, so-called payday loans which are cash loans in the conventional sense, and term loans, which are sligthly more structured, cover a longer term, and preferred by micro-enterprises.
The observed trend in the first quarter reflects a prevalent seasonal pattern over the years, except in the first quarter of 2014 when the rate of growth over the quarterly and yearly base was driven by the transactions of both term and payday lenders.
Other statistics quoted in the report show that the number of payday lenders approached 150,000 for the period under review with sligthly more than 27,000 term lenders. It is the demand for short-term credit in January by households that push up the payday lender category. During other quarters, term lenders took up the bulk of credit.
The report also reveals that by value, term lenders are far more significant than payday lenders. The average term loan is typically around N$19,000 over the period of the loan while payday loans are on average only N$1354.00 per month
The industry total loan book grows by just over 0.8% per quarter. At the end of the first quarter 2016, the loan book stood at almost N$4.3 billion. It was also found that while term loans are substantially bigger than pay day loans, the growth in number of lenders came from conventional payday cash loans and not from term loans.
During the period under review, twelve new applications for registration as micro-lenders were approved after completing the assessment by NAMFISA while 14 existing lenders were deregistered. There are a staggering 278 micro-lenders registered with NAMFISA who said 61% of these were fully compliant with no regulatory of financial risks to the national financial system.