Payroll deductions blamed for N$7.5bn cash loan surge

Namibia's financial regulator says the country’s ballooning cash loan market, which hit N$7.5 billion in December, is fuelled in part by a payroll deduction system that reduces lending risk and encourages borrowing.

Last week, the Namibia Financial Institutions Supervisory Authority (Namfisa) confirmed that total household debt stood at N$78 billion by December 2025, with the microlending sector accounting for about 9% of that, or roughly N$7.5 billion.

The payroll deduction system dates back to public service payroll arrangements introduced in the late 1990s and early 2000s.

It has since become embedded in Namibia’s microlending sector following the implementation of the Microlending Act of 2003.

Speaking before parliament’s standing committee on economy, industry, public administration and planning in Windhoek, Namfisa general manager for market conduct, Hilka Alberto, said the structure of the microlending sector, particularly payroll-based lending, is a key driver of rising household indebtedness.

Alberto said access to credit in the microlending sector remains significantly easier than in the formal banking system because the payroll deduction model reduces default risk by securing repayments directly from salaries, making borrowers, particularly civil servants, one of the most attractive groups for lenders.

“The structure of the system makes it easier for lenders to extend credit because repayment is effectively guaranteed at source,” Alberto said.

In a tight corner

Alberto said that a combination of structural, behavioural and market factors is driving indebtedness.

Structurally, she explained, the payroll deduction system has expanded access to credit.

Behaviourally, lifestyle choices and limited financial literacy influence borrowing.

At a market level, rising living costs and tight income conditions are pushing households to rely on credit to survive.

Alberto explained that unlike banks, microlenders generally do not require collateral and apply less rigorous approval processes, making credit widely accessible, particularly to low-income earners.

Alberto warned that affordability assessments are inconsistently applied, increasing the risk of over-indebtedness.

“You find some lenders that do proper assessments, but others do not go the full range, and that leads to consumers taking on loans they cannot afford,” she said.

Limited supervisory capacity

Alberto said proper assessments should be based on a borrower’s discretionary income – the income remaining after all financial obligations are accounted for – requiring lenders to review payslips, bank statements and existing expenses before approving credit.

Namfisa’s oversight remains constrained, she added.

“We are unable to go to all lenders, so we focus on those that impact more consumers,” she said, highlighting limitations in supervisory capacity.

Despite existing laws, gaps remain in the regulatory framework. Alberto said pawnbrokers, retail shops and other lenders fall outside current regulation, resulting in uneven enforcement and exposing consumers to potential exploitation.

Namfisa chief executive Kenneth Matomola said the regulator achieved 75% of its strategic targets in the 2024/25 financial year, with further improvements planned to strengthen oversight.

Alberto stressed that improving outcomes will also require a coordinated focus on consumer education and financial literacy to help borrowers make informed decisions and reduce reliance on credit in an environment where many households are already operating under tight income constraints.

Government is developing a consumer credit bill to bring all lenders under a single regulatory framework, close gaps and strengthen consumer protection, Alberto said.

Heavy debt

The public hearing took place in order for parliament to assess whether Namibia’s lending laws are fit for purpose, reviewing issues such as interest rates, deduction codes, fees, repayment terms, debt collection practices, enforcement capacity, and consumer protection measures.

Deputy chairperson of the committee, Hilma Iita, said Namibia is a constitutional democracy built on human dignity, equality and social justice.

She said it is unacceptable that citizens, especially the most vulnerable, are trapped in cycles of debt that erode their dignity and destabilise their livelihoods.

Iita underlined that too many Namibians struggle under the weight of debt – not debt taken on for investment or ambition, but debt taken on for food, rent and school fees.

On 28 August 2025, the finance ministry issued a directive to end discretionary payroll deductions on the system from 30 November, saying only existing loans would continue, while statutory deductions such as tax and pension contributions would remain.

The ministry argued that payroll deductions used by microlenders do not comply with the Labour Act and have enabled lenders to bypass proper affordability checks.

The proposed phase-out is aimed at forcing stricter lending practices and reducing over-indebtedness, the ministry explained.

In response, microlender Entrepo Finance filed an urgent application challenging the decision, arguing that the removal of deduction codes was irrational, irregular and unreasonable. 

High Court deputy judge president Hannelie Prinsloo ordered in November 2025 that the system continue operating, directing that the minister not interfere with the loading of new deductions, and that the system must remain in place.