Govt throttles lifeline to micro loans

Brian Benza
Staff Writer | Friday September 9, 2011 00:00

 

Civil servants, microlenders and mobile phone companies are set to emerge the biggest losers from a recent decision to withdraw the government as the 'clearing agent' for credit arrangements between the three parties.

Already, preliminary estimates indicate more than P67 million on a monthly basis going out from civil servants to microlenders and cellphone providers will be affected by the move.

Government has said it will no longer be the intermediary for collection and payment of credit between civil servants and corporates, a decision that has sent shock waves across unions and the corporate world.

On the back of the guarantee of a close to zero default rate provided by the deduction of repayment at source, most of the country's 120,000-strong civil service has been having easy access to financial assistance in the form of micro-loans and union facilitated financial packages.

Now, effective December, government will stop acting as the clearing house on behalf of its employees, a development that will make it difficult for the civil servants to get access to micro loans and union facilitated packages.

'Government has decided to cease providing public service unions with assistance packages in an effort to standardise assistance across all recognised unions,' says Assistant public relations officer at the DPSM, Akanyang Mmoi.

'In particular, government has decided to cease facilitating with deduction of loan repayments to unions and micro lenders. Furthermore, government has stopped the release of union office bearers on secondment and provision of transport for union annual conferences, congresses and governing councils.' The five Botswana civil service unions last week took government to court for enacting regulations that change their conditions of services without consulting. Says the secretary general of BOFEPUSO, Andrew Motsamai: 'We have received the communication from government regarding their decision to stop deduction from source.

'While this will certainly cause further suffering on public servants who use these facilities, the decision will also have sector-wide repercussions on the arrangements we had with industries such as micro-lending and telecommunications. Microlenders will be adversely affected as their business has been thriving on the lower default rates on repayments.'

Although most microlenders will be heavily affected, the country's largest microlender has already waved the red flag with an announcement to the market. With much of its business coming from loan arrangements with civil servants, Letshego this week advised its shareholders about the government's decision to stop the 10-year old arrangement that has been its cash cow.

'Letshego Holdings Limited was informed on August 31, 2011 of the intention of the government to cease facilitating the deduction of microlenders loan repayments from source effective 1 December 2011,' it said in a cautionary statement.

'Should this revocation come into effect, Letshego Botswana will use alternative methods for the collection of contractual monthly loan repayments. The Board of Directors is engaging with the relevant authorities to obtain more clarity and a resolution to this matter. Shareholders are therefore advised to exercise caution when dealing in the securities of the company,'

The company has less than three months to craft new ways of collecting repayments on loans some of which could have tenures of as long as five years. Although Chief Financial Officer, Colm Patterson, declined to comment on the matter citing ongoing negotiations with the authorities, the revocation is set to take some pace off the microlender's expansion programme, which has seen the company opening offices in Mozambique, Swaziland, Zambia, Uganda, Tanzania, Namibia and Angola in the past five years.

Letshego, which now offers macro loans of up to P200,000, is collecting at least P66 million per month from government employees in loan repayments. The revocation is set to dent its P2.3 billion loanbook. Motsamai says mobile phone companies are another industry that will be affected because they had airtime purchase arrangements with the unions with the money deducted from source at month-end.

'As BOPEU alone, we were paying the mobile phone companies around P1.6 million a month under the airtime purchase arrangement' he says. 'When you factor them in the other four unions that also had such arrangements with the mobile phone companies, you can see how much these companies are going to lose.'

At the time of going to press, it was not clear if deduction from source of insurance premiums for government employees would also be affected.