Trade ministry warns businesses

The Ministry of Trade and Industry has warned banks and other credit providers not adhering to regulations under the Credit Agreement Act of 1980, that they risk being penalised.
The regulations contained under the Credit Agreement Act of 1980 prescribes the deposit that should be paid in cash by clients before a hire purchase agreement or loan is granted as well as the period in which a loan is to be repaid.
In a notice released earlier this week, the ministry said it had noted with concern that banks and other credit providers are not complying with these requirements.
“For example, where regulations prescribe that a deposit for a motor vehicle requires 10% of the purchase price and the loan to be repaid within 54 months from date of delivery, they are offering credit without a deposit and extend the repayment period to 60 months. This normally leads to over-indebtedness and irresponsible borrowing by consumer,” the notice by the trade ministry said.

The ministry added that it had deemed it necessary to republish the regulations as published in the Government Gazette No.536 of 01 December 1992 in an effort to curb the over-appealing credit offers by the credit providers and to sensitise the consumers of their rights.
“All credit providers are herewith reminded to comply with the provisions of the regulations to avoid any penalties applicable.”
The move by the trade ministry comes shortly after the Bank of Namibia announced in December that it is consulting with the Ministry of Trade and Industry – custodians of the Credit Agreements Act – and the Ministry of Finance to use the Act as a tool to reduce the prevailing high consumer indebtedness.
Governor Ipumbu Shiimi told reporters that after a robust debate by management of the central bank, a decision was taken to use the Credit Agreements Act as a targeted intervention instead of increasing interest rates to avoid tampering with the stimulus effect of the low interest rate regime currently prevailing.
Amendment to the Credit Agreement Act will likely see consumers buying goods through hire purchase agreement pay deposits of between 15% and 20% up from the 10% currently required by law. Shiimi added that if gazetted, the revised deposit payments will help promote a culture of saving in addition to slowing down credit growth.
In the meantime, SME Compete Director Danny Meyer said the level of indebtedness for both individuals and enterprises is now a cause for concern.
In response to the Ministry of Trade and Industry notice, Meyer advised small and medium enterprises to routinely save a portion of profit generated to fund business growth as well as saving before spending.
He urged businesses to exercise financial discipline at all times, which includes avoiding impulse buying. In addition, he said businesspeople should do their ‘homework’ before buying on credit for themselves or for the business or entering into loan agreements that might be difficult to service. “Plan business expenditure (including growth, asset buying, etc) carefully and continuously, and tackle challenges (debt problems) timeously so that panic borrowing (cash loans secured at excessively high interest rates) is avoided,” Meyer advised.
He also urged businesses to consider alternate funding options other than borrowing. “For example: seek a business partner who can inject much needed working capital, sell/dispose of unwanted assets or assets surplus to needs, have a sale as a way to turn stock on the shelves into cash, among others.”