How cash-loans make a killing

Financially struggling people who turn to micro-lenders for a quick fix to their money problems are finding that they often fall victim to exorbitant interest rates charged by unscrupulous operators. Micro-lending is one of Namibia’s fastest growing industries with over 500 registered ‘payday lenders’. They rake in millions of dollars annually from the average cash-loan lender, who earns around N$3 500 per month. High administrative costs, security checks and stringent client assessment procedures at formal banks mean that many people in the lower- to middle-income brackets who need quick money turn to cash-loan businesses for short-term loans. Payday lenders usually require that borrowers show their ID, a copy of their latest payslip and three months’ bank statements. The repayment period of these short-term loans ranges from one to three months. Some of the registered micro-lenders are, however, breaking the law by demanding that borrowers surrender their bank cards and even personal identification numbers (PINs). Card cloning Card retention by micro-lenders has in some cases resulted in card cloning and fraud. An investigation by Namibian Sun also found that some micro-lenders charge more than the stipulated maximum 30% interest. Namibia Financial Institutions Supervisory Authority (Namfisa) Chief Executive Officer Phillip Shiimi says micro-lenders can charge between 25% and 30% interest on short-term loans. “This means that the loan does not attract a monthly interest of 30%, but only a once-off rate over the loan period,” said Shiimi. Prime lending rate In the case of financial service providers who grant term loans that allow a borrower to repay the loan over six months or more, the interest charge is calculated at two times the prime lending rate – which varies depending on the Bank of Namibia. The annual rate used by term lenders is currently 19.5% and providers of this type of service usually deduct instalments from borrowers’ salaries or bank accounts, unlike payday lenders where clients repay their loans in cash. A regular borrower who spoke to Namibian Sun on condition of anonymity said at times he gets cash loans from two micro-lenders in order to cover debts he has accumulated due to financial indiscipline. “Once you go to a cash loan once, you’ll never get out of debt because you’ll always be getting loans to pay for another debt, and thereby creating another debt. Worst of all, these cash loans charge very high interest rates,” he said. During investigations, one of the cash-loan businesses found to be charging over 30% for short-term loans was Ondangwa-based moneylender Ombalantu Financial Services CC. According to information supplied by Ombalantu, clients who want to take a three-month loan have to pay a total of 45% interest on the loan amount. Borrowers who do not bank with First National Bank (FNB) are required to bring along their bank cards to allow the micro-lender to make the necessary deductions. Another business that was found to be charging a total of 45% interest on three-month loans was Swakopmund-based Orion Financial Aid CC. According to information on Namfisa’s website, Ombalantu Financial Services is owned by a certain Mr HW Kock and was registered on May 8, 2007, while Orion Financial Aid is owned by Ms EH Smith and was registered on May 14, 2007. When called for comment, an employee of Ombalantu referred all queries to Orion Financial Aid, as both businesses allegedly “belong to the same people”. The manager of Orion Aid, Anita Jordaan, denied that both businesses were overcharging clients. She said a breakdown of the figure reveals that they charge 15% interest every month. “So what? That is what is prescribed by Namfisa. The law states that you can’t exceed 30% interest per month and we don’t. If you divide the 45% over three months, you will find that we are charging 15% per month and that is way below what the law stipulates,” said Jordaan. If Namfisa finds that micro-lenders do not adhere to the stipulated rates, supervisory actions are taken against them, which may include instructions to refund customers who were overcharged. Alert Namfisa “Any interest rate, above what is prescribed, is illegal and the consumers must, as soon as possible, alert Namfisa for investigation and action,” said Shiimi. So far, Namfisa has cancelled 273 micro-lender licences due to non-compliance while numerous others have been issued with cancellation notices. According to Shiimi, if consumers believe that they have been overcharged, they should first bring this to the attention of the concerned entity and if the matter cannot be resolved amicably, the consumer should approach Namfisa’s complaints department. “The most severe step that Namfisa can take against a non-compliant entity is deregistration or revocation of that entity’s licence. This step is taken as the most extreme measure and follows several attempts by the Authority to have the entity correct all its shortcomings, including repaying customers in cases of overcharging,” stressed Shiimi. Framework of the law Namfisa further encouraged consumers who wish to borrow money from micro-lenders to first make sure the lenders are registered with Namfisa. Namibia Chamber of Commerce and Industry (NCCI) Northern Branch chairperson Tomas Iindji has called on micro-lenders to work within the framework of the law, after receiving numerous complaints about registered loan sharks that are overcharging clients. “We have already alerted Namfisa and asked that they probe allegations of non-compliance by some financial service providers. We will wait for Namfisa to share the findings with us,” said Iindji. OSHAKATI MERJA IILEKA