…as loan sharks continue to profit
By Hilary Mare
THE number of payday-loan borrowers rose by 23.6 percent to 71,291 in comparison to the previous year, while the value for disbursements rose annually by 14.3 percent to N$1 billion, Namfisa’s latest annual report for the year ended 31 March 2018 indicates.
Essentially, the micro lender loan book value at the end of 2017 rose significantly by 29.3 percent to N$5.5 billion, compared to a marginal reduction in the loan book value at the end of 2016.
Payday lenders on the loan book accounted for 26 percent of the total loan-book value, the Namibia Financial Institutions Supervisory Authority annual report said.
Furthermore, the number of new loans issued during 2017 was dominated, like in the past, by the number extended by payday loan lenders. In this respect, the number issued by payday-loan lenders accounted for 83.1 percent of the total number of new loans issued.
“The main contributors to the rising loan book were mainly due to term lenders, as the number of term-loan household borrowers and the value of the term-loans disbursed rose annually by 14.1 percent and 14.4 percent, respectively,” highlighted the report.
Therefore, with respect to the cumulative number of household borrowers that benefited from the microlending transactions, term-loan borrowers continued to dominate the number of payday-loan borrowers. In this respect, the number of term-loan household borrowers accounted for 78.0 percent of the total number of borrowers, while only 22.0 percent was accounted for by payday-loan household borrowers.
As a result of the higher values of disbursements by the term-loan lenders, their average amount of the loans extended continued to be larger than that of the payday-loan lenders, like in previous years. In this respect, during the period under review, the average amount of a loan extended by the term-loan lenders rose annually by 5.9 percent to N$21,835, while that of the payday-loan lenders increased by 8.8 percent to N$1,554.
“Like in the preceding years, disbursements during 2017 were mostly for bridging consumption needs, and increased by N$400 million to N$3.6 billion. The increase was driven by the transactions of both term-loan lenders and payday-loan lenders. The credit extended by term-loan lenders increased by 14.4 percent, while that of payday-loan lenders rose by 14.3 percent.
“In this connection, as already alluded to under the discussion of the book value, although the rate of growth is almost equal, it is important to note that the impact emanating from the transactions of term-loan lenders is more significant, due to higher transaction values by term-loan lenders. As a result, the total value of the term-loans disbursed in 2017 amounted to N$2.7 billion, which accounted for 74.0 percent of the total value of the loans disbursed,” the report explains.
When compared to the transactions of the banking sector, the stock of the loans extended by microlending institutions has been growing at a faster rate in recent times. For example, at the end of the period under review, the banking sector credit rose by 6.2 percent compared to that of the microlenders that rose by 29.3 percent year on-year.
“This can be attributed to a number of factors such as the less stringent affordability assessments and credit conditions in the microlending space. In this regard, microlending loans extended without affordability assessment lead to a vicious cycle of household over-indebtedness. This in turn worsens household financial vulnerability, which is thoroughly addressed in the promulgated Microlending Act of 2018.
“Relative to the legislative requirement for the maximum loan extension of N$50,000, the market continued operating below the maximum limit. This is a sign that the market continued extending credit mainly for bridging low value consumption by households. However, the gradual growth witnessed over the years might be a reflection of the slow pace of growth in disposable income, relative to the inflationary pressure in household consumables,” the Namfisa report stated.
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