Lax Laws Foster High Indebtedness
Keikantse Lesemela | Monday October 27, 2014 16:45
Speaking to the Business Monitor, Tshotelo said most people are caught in the trap of high arrears because financial institutions and banks are failing to give sufficient information on their charges.
“ There are many cases of high indebtedness debts in Botswana and in most instances people jump into loans without being informed about the charges,” he said.
Tshotelo, who operates a financial counselling company (Betterlink), said the regulatory authorities and the Ministry of Finance and Development Planning do not have strict policies and laws, which govern unfair interest charges especially in the micro-lending sector.
“I have many clients who had arrears exceeding their loan amount three times, and this is normally happening with the micro lenders,” he said.
He said in other countries like South Africa there is a law enforced to ensure that people go through counselling before they take a loan and it helps them not fall into high arrears.
“ We should have that law because this situation of high indebtedness shows that Batswana are financially illiterate,” he said.
However Non-Banking Financial Institutions Regulatory Authority (NBFIRA) Communications and public Affairs Manager, Tapologo Kwapa said the authority does not regulate the interest rates charged by microlenders but rather they apply the ‘In Duplum Rule’.
The rule states that unpaid interest on a money debt owing ceases to accumulate once it reaches the amount of the capital sum.
“We don’t regulate the interests rates and charges but we apply this rule to ensure that interest charges does not exceed the principal amount of the loan. Until there is an act that regulates the interest charges, we are still going to operate with this rule only,” said Kwapa.
The In Duplum rule protects debtors from exploitation by ensuring that their creditors cannot allow interest to accumulate indefinitely.
According to Section 8 of the NBFIRA Act, the principal objective of NBFIRA is to regulate and supervise the non-bank financial institutions so as to foster the safety and soundness of non-bank financial institutions.
It also ensures the highest standard of conduct of business by non-bank financial institutions, their fairness, efficiency and orderliness.