Sinking in massive debt

MASERU – THE Covid-19 pandemic, reckless borrowing and conspicuous consumption have left thousands of workers drowning in debt, says the Central Bank of Lesotho (CBL).

The CBL called an indaba last week to discuss Lesotho’s household indebtedness, which it said had reached alarming levels.

The bank said some families are continually trapped in debt and many have resorted to borrowing to pay off debts.

This vicious cycle, the bank said, is despite its measures to help people avoid falling into debt.

“This is a global problem but in the context of Lesotho, it is a salaried problem,” the CBL Governor Dr Maluke Letete said.

“It is a problem for a certain segment of the society.”

The CBL said the proportion of borrowers with loans in three and more months in arrears rose from eight percent (11 260) in the fourth quarter of 2017 and peaked at 14.25 percent (19 205) in the third quarter of 2020.

It said Non-Performing Loans (NPL) ratio for individual borrowers in the banking industry rose from 3.4 percent in 2017 to 4.2 percent in 2022.

The NPL ratios for mortgages increased the most, from 5.7 percent to 9.4 percent.

“Complaints from over-indebted consumers in need of debt relief at CBL have increased significantly since the outbreak of Covid-19, mainly from Micro-Finance Institutions (MFIs) and banks,” said Lefeela Nalane, an official from the CBL’s Financial Consumer Protection Division.

Nalane said job losses and salary cuts due to the pandemic pushed more people into debt. Nalane said some people went for staff loans while others opted for small money lenders.

He said although it is illegal, micro-lenders continue to take customers’ ATM cards and Identification Cards (IDs) as collateral security.

He said some micro-lenders accept these forms of security without knowing that customers will not be able to pay their loans because they are already heavily indebted.

Nalane said impulsive borrowing is another reason why some people are drowning in debt. He said hundreds of civil servants are walking to work because they cannot afford transport after paying their debts.

The CBL’s meeting last week came seven months after the High Court handled a case that revealed the plight of some civil servants trapped in debt.

The case was brought by 26 civil servants who wanted the court to block the government from deducting loan repayments from their salaries on behalf of five micro-finance companies.

They argued that it was illegal for the government to deduct the repayments and leave them with less than 30 percent of their salaries.

The court agreed with that argument but refused to grant an order forcing the micro-finance companies to refund the civil servants.

Although the ruling provided some relief for the civil servants, it revealed that the government’s systems and the law could not protect civil servants against micro-lenders.

The respondents in the case were five microfinance companies and the Central Bank of Lesotho (CBL), among others.

The companies were Letshego Holdings (Pty) Ltd, Lesana Financial Services (Pty) Ltd, Platinum Credit Lesotho (Pty) Ltd, Netloans (Pty) Ltd, and Alimela Thuto Financial Ltd.

The meeting last week was not the first time the Central Bank warned about the high level of indebtedness among workers.

In May last year, the CBL’s Financial Consumer Protection Unit said teachers and police officers were sinking in a sea of debt.

The revelation was made during the launch of a campaign on indebtedness.

The bank said of all consumers who wrote to the unit seeking help, police officers and teachers were among the most highly in debt.

The then acting governor of the Central Bank, Lehlomela Mohapi, said they launched the Financial Consumer Protection Unit after realising that a lot of people were suffering under the weight of debts.

The unit aims at resolving matters between money lenders and recipients of loans. Mohapi said their assessment found that more complaints were coming from indebted civil servants.

He said they also found that security agents and teachers were among some of the most indebted workers in the country. This includes soldiers and intelligence agents.

“This is a national crisis which needs to be worked on in collaboration (with other sectors),’’ he said.

He said salaried people will need to be educated on personal financial management.

Mohapi said the Central Bank would send out its team to provide education on financial management to civil servants.

He said they will also host workshops in the districts, especially in the security and education sectors.

The Commissioner of Police, Holomo Molibeli, acknowledged that officers were struggling with debt.

“This has also led to the police getting involved in corruption in an effort to supplement their salaries,” Commissioner Molibeli said.

“Some even opt to resign so that they can settle their debts with their retirement packages.”

Nthole Mojapela, the director of MM Financial Loans, said microfinance companies are often unfairly blamed for pushing people into debt.

Mojapela said microfinance companies are sometimes victims of customers who default on their loans because they are already in serious debt.

“You could see clients who are hungry for money but could not want to repay,” Mojapela said, adding that some clients could be genuinely unable to pay back.

He said although they are licensed by the Central Bank, some clients regard them as informal lenders and try to avoid paying their loans.

He said microfinance companies have to resort to demand collateral on personal loans because banks are unwilling to allow their customers to have debit orders to service their loans.

He said banks do not help them to get their money through debit orders.

“Banks do not facilitate debit orders for us because they say we take business from them,” Mojapela said.

“We usually ask for movable property as an institution.”

Tjale Maila, from Myloan Limited, said some clients give them false information about where they stay when applying for loans.

Maila said he once sold property given to him as collateral security and the owner dragged him to court.

He said the court ruled in his favour after finding that the clients had approached the court with dirty hands.

Regarding civil servants, it is usually easier to assess them through the Central Deduction Authority System (CDAS).

Maila said CDAS helps them to assess civil servants.

Majara Molupe & Relebohile Tšepe