Namibian households are still struggling to make ends meet, amidst a recessionary economic environment branded by high interest rates, rising food and fuel prices, and stagnating wages.
The country’s cumulative number of household borrowers increased on an annual basis by 4.7% to 244 697 beneficiaries at the end of 2022.
This is according to the Namibia Financial Institutions Supervisory Authority (Namfisa), which noted that an increase in the number of household borrowers was reflected in the category of household borrowers transacting with payday lenders.
“As a result, the number of household borrowers transacting with payday lenders rose by 23.3% year-on-year at the end of 2022, while the number of household borrowers transacting with term lenders declined by 3.1%. Despite this observed inconsistency, the number of term borrowers remained greater than the number of payday borrowers in relation to the total number of household borrowers as of 31 December 2022,” reads Namfisa’s recently-released 2023 annual report.
Namfisa is an independent institution established to regulate and supervise institutions in the financial services’ industry in the public interest. The authority is fully-funded by levies imposed on this industry.
Despite a decrease in the value of the loans disbursed, the number of new loans issued rose by 7.1% on an annual basis to 618 675 as of 31 December 2022. Most of these loans comprise payday lenders.
Namfisa stated that the increase in the total number of new loans issued is consistent with that of the payday lenders, as the total number of new loans issued by term lenders declined. Consequently, payday lenders accounted for 86% of the total number of new loans issued, while term lenders accounted for the remainder.
On their overall performance, the authority’s total income for the year ending 31 March 2023 amounted to N$246.7 million, while expenditure totalled N$260.6 million. Other comprehensive income amounted to N$5 million. The total comprehensive deficit for the year amounted to N$8.9 million, compared with a budgeted deficit of N$22.8 million.
Namfisa’s total assets decreased by N$13.5 million (4.2%) to N$304.6 million as of 31 March 2023. This decrease is the result of a total comprehensive deficit of N$8.9 million, plus a decrease in liabilities of N$4.5 million. The decrease in liabilities results mainly from a decrease in the long-term lease liability to N$12.7 million from N$25.2 million as of 31 March 2023.
Meanwhile, the financial stability report for 2022 released by the Bank of Namibia (BoN) and Namfisa shows that household debt servicing costs almost doubled from 2020 to 2022.
“The household debt servicing costs increased from 9% in 2020 to 17.8% in 2022, reflecting a combination of higher debt levels as well as high-interest rates. Although households are highly indebted, most of their debt is secured lending, with mortgage lending accounting for most of it,” reads the financial report released by the two entities.
Therefore, the financial strain on household budgets is becoming worse, forcing many families to take out more loans just to survive.
Residents weep
A Windhoek resident preferring anonymity described her living circumstances as difficult and unpleasant. She narrated how everything has become worse, plunging everyone into debt. She claims she rarely sleeps at night because she is always bothered by the idea of accruing debt to supplement her meagre salary.
“Being a mommy and a domestic worker is not easy. It’s hard to survive in this place without debt; it’s impossible. We are simply imprisoned in indebtedness because you borrow from A to pay B, and from B to pay C again”, she lamented.
This trend continues, despite an astronomical increase in debt servicing costs. But the majority of households state that they have no choice but to dance to the available music.
According to analysts, the escalating debt trend signifies a desperate economic environment that domestic households find themselves in. The situation has been exacerbated by the escalating prices of goods and services, as well as constantly rising interest rates.
Another household head, Caleb Majooka, said: “Our salaries have been the sole stable factor for a very long time, which has made the economy difficult due to the increasing inflation rate. Given the rise in all household expenses, including food, rent, clothing, fuel and transportation, this has been the economic scenario. This has made it challenging for us to live on our fixed wages because it has reduced our purchasing power relative to our expenses”.
Majooka, also a farmer, added that although borrowing has grown more expensive due to increases in interest rates, households are still compelled to utilise it to survive. Farms and small businesses that were once significant sources of income are also experiencing trouble due to the protracted drought and other adverse externalities, he observed.
Independent economic and business researcher Josef Sheehama said with so many people seeing their source of income interrupted, it’s no surprise that people look to loans to survive.
The widely-held assumption is that obtaining loans for households provides a much-need income boost, allowing smooth consumption and risk management. But, critics argue that obtaining loans has not improved incomes, and has instead led to increased indebtedness, which leads to more depression and more suicides in some cases.
“Not all debts are bad. Good debt has the potential to increase your wealth, while bad debt costs you money with high interest. The mortgage and study loans are good debts. Because when you take it on, you become a homeowner. A degree may not be an asset the way a house is, but you might think of it the same way as far as its financial potential. You invest in a degree, and, on average, you potentially earn lifetime returns in the form of higher salaries. But remember, even good debt can turn bad if you take on more than you can realistically pay back, or at too high an interest rate,” Sheehama elucidated.
The researcher thus advised that before borrowing money, ask whether it’s steering towards achievable goals, or pushing away from them.
“Is it a need or a want? Can I approach the attitude of wait and see? Hence, even with good debt, it is important to practice moderation,” Sheehama emphasised.
(Loans)
Photo: Loans
Caption: Debt burden… Households are still being trapped in debt to survive. Photo: Contributed