Civil servants drown in microfinance loans

Stephen is a teacher at a rural school in Mutoko and this is his third trip to a similar office set-up in Harare.

This will be his fourth micro-finance loan in less than six months. He wants to borrow US$200 and needs the money to top up his child’s form one school fees. His effective take home pay has been dwindling ever since he took out his first loan from a microfinance company.

The loan repayments, which now total US$135 a month are taking up most of his net income, leaving him with accumulating bills.

In the queue for loans, Stephen joins two soldiers and a policemen in uniform, a dozen other people and a well dressed elderly nurse.

The common characteristic of this company’s clientele is that they are all civil servants and they are all looking to access easy loans.

The loans are now synonymous with civil servants to the extent that it would be fair to call them civil servants loans.

Most of the civil servants waiting with Stephen are not accessing their first loan. They have loans with several other lenders of similar ilk.

Across the road from where Stephen and his kin are waiting, George Bere is also filling in forms to access a business loan from yet another Microfinance Institution.

George is a commodity broker and needs US$5 000 to finance an order for spares that he has received from a large company from which he reckons he will make a profit of US$3 500 after delivery of the goods in about thirty days time. George is willing to cede his 2001 Mercedes C180K worth about US$12 000 to access the loan. He has spoken to his wife and they have agreed to share their second car in the meantime.

In both cases, Stephen and George will have the loans processed in a short while. In just over a day, they will collect their cash after the lenders have deducted as much as 15% in various upfront fees and charges. Thereafter, interest rates are as high as 20% a month on the outstanding balance, with serious penalties accruing once the repayment date is reached and payments have not gone through. Herein lies the problem. Such has become the norm for the Zimbabwean working class, who are falling prey to loan sharks.

The workers are attracted initially by the easy credit which ensnares them and eventually enslaves them; they keep coming back not because of good service and favourable loan terms but they ‘’have to come back” to refinance moneys that would have been deducted from their meagre salaries at Salary Service Bureau (SSB) to service these ballooning loan repayments.

For instance, George will on the other hand suffer a similar fate as his “Order Financing Loan” will quickly go bad.

He will supply his spares, but because this is the first time he is dealing with the ‘’large company’’ he has not done his homework. They will pay him for his supplies after 90 days, long after his loan has fallen due. By that time, the interest charges and attendant default penalties will have eaten up his profit margin and he will be left with an outstanding balance and interest on the loan. He will unfortunately have to sell his other car to eventually save his prized Mercedes from disposal by the lenders, who will want to exercise their rights to the pledged collateral.

The above scenarios would not occur if Zimbabwe introduced proper legislation to regulate the credit markets.

Analysts say there is need for the establishment of a proper and well capacitated national Credit Clearing Bureau where the names and credit histories of all borrowers can be accessed. This, many feel, does not only protect borrowers from unfair lending practices, but also enables lenders to access vital credit history information about their clients and potential clients. A situation where there is no functioning central credit bureau, and no legislation to protect borrowers and lenders, leaves consumers vulnerable to irresponsible and sometimes downright unfair credit practices.

Lenders are also lending in the dark as they cannot meaningfully assess the creditworthiness of would be borrowers.

The result is a highly dysfunctional credit market which is sure to implode. Analysts say it is just a question of time.

The say it’s time Zimbabwe borrowed from best practices and institutionalise regulation of the credit markets. South Africa did this in 2005, enacting the National Credit Act 34 of 2005. This saw the birth of the National Credit Regulator, NCR and a plethora of supporting institutions, credit clearing agencies and credit counsellors. This has led to more responsible lending practices, better protection for consumers and more stable credit markets.

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