Cabinet weighs in on household debt crisis
Mbongeni Mguni | Saturday June 28, 2014 14:53
BusinessWeek is informed that Cabinet has been pressuring the Bank of Botswana (BoB) for recommendations on tackling the household debt crisis, which various commentators say has reached critical levels.While the Bank says its statutory mandate of ensuring banking system stability remains unthreatened by rising household arrears, the Executive attention is understood to have thawed attitudes at the BoB, which this week announced it was worried about “consumer welfare” in the debt crisis.
Highly-placed insiders told BusinessWeek that members of Cabinet had asked the central bank to address rising household indebtedness from a consumer welfare point of view and make recommendations. By March 2014, households owed commercial banks P23.4 billion with arrears of P1.2 billion by the end of December 2013 and billions more owed to hire purchase services, microlenders, pawnshops, salary advances and informal lenders.
A household debt report prepared by the Bank of Botswana left Cabinet members’ gobsmacked recently, adding to the impetus to establish the independent financial ombudsman, BusinessWeek is informed.
“The debt report was presented together with the Annual Report, but at the end, there were no questions about the Annual Report,” an insider said. “All questions from Cabinet were on the debt report and what was being done to alleviate the situation.”
The insider said a Cabinet memo is due to be prepared as the first step in establishing the new ombudsman, followed by drafting of a bill and eventual presentation to Parliament next year.
The BoB’s Monetary and financial stability deputy director, Matthew Wright, told BusinessWeek that while the proposed financial ombudsman would not be the same as a credit regulator, it would cover complaints against all credit providers.
The existing Office of the Banking Adjudicator only investigates complaints against the commercial banks, who also fund its operations, raising concerns about impartiality, independence and efficacy.
On the other hand, a credit regulator, such as exists in South Africa, would protect consumers from unethical lending practices and also provide various forms of relief to the debt-riddled.
“It will not be the same as a credit regulator,” Wright said in response to BusinessWeek enquiries during a BoB brief on Monday.
“The financial ombudsman would be a sector specific independent organisation playing the role of investigating complaints by the public and this would be a development beyond what we have at the moment.
“It will be fully independent and it will cover the whole financial sector which is important when you consider the role of financial inclusion and participation as well as the need to bring in those outside the banking system.” The existing Banking Adjudicator, Gabriel Maotwanyane, has perennially called for greater independence to his office, saying this was not only in line with international best practice, but was also critical for greater public trust.
“The desired structure is no different from any corporate governance structure, where there is an independent board comprising members of consumer bodies, agency of government concerned with consumer issues and Banking Council/Bankers Association, which would appoint the Ombudsman CEO,” Maotwanyane said previously on an autonomous ombudsman. “The ultimate reporting lines would be spelt out.
“The World Bank produced a report in 2012 laying the Guidelines and Policy on how an ombudsman office in the financial services should operate and this was presented to major stakeholders here.”