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End of the road for bad debtors

Mpeshe Selebalo


 MASERU — The days of accumulating debts and disappearing without paying will soon be over.

The Central Bank of Lesotho (CBL) is working on introducing a national credit bureau to keep and track the credit history of people.

The bureau will have a comprehensive database of all debtors — both good and bad.

So if you default on your loan with one bank you will be blacklisted and will not be able to borrow money from another bank.

If you fail to pay for your furniture at OK you will not be able buy things on hire purchase from Lewis Stores.

If you default on your car loan payment your name will be flagged in the credit bureau system so that you don’t get another loan from another bank.

You will not be able to borrow from B-Blue Finance if you defaulted on your loan with Boliba.

In short, you will not be able to borrow from Peter to pay John.

Because the system will be centralised it means your credit history on any financial transaction in the country will determine whether you get a loan or not.

That means if you are in the habit of dodging small loans like bank overdrafts you will not be able to get a house mortgage or loan to finance your business ventures.

You will find it difficult to get education loans for your children.

The bureau means that you cannot get away with writing bad cheques to parry lenders.

And if you write a cheque that bounces you will probably never be able get credit or have a cheque-book again because your name will reflect in the system as a bad debtor.

The same applies if you don’t repay tertiary government education grants to or owe tax.

The government has already threatened to blacklist former educational loan recipients who have not paid back.

The credit bureau however does not decide whether one gets credit or not: it just gives information to institutions, usually banks, retailers offering credit and other credit grantors.

It is them that will decide whether to give credit or not.

That means even if you have a bad credit history a bank might give you a loan but add stringent conditions to protect itself from risk.

A financial institution might ask for more collateral, charge a premium interest rate or reduce the duration of the loan if a customer’s credit history is not favourable.

Companies that sell goods like furniture on hire-purchase terms might ask for a significant deposit if your credit history indicates that you are not very reliable in paying your debts.

Banks, financial service providers and businesses will immediately report bad debtors to the bureau.

Customers who pay their debts on time and in full will get points while those who perennially evade their debts will have points deducted for their profile.

But before the bureau is established parliament will have to first pass data protection and credit information security laws to protect customer information against abuse.

The government will have to introduce a national identification system which will make it impossible for unscrupulous creditors to change their identity to dodge mounting debts.

The CBL says the bureau will help people get loans while protecting businesses against bad debtors.

“This is a big issue because credit extension is a requirement for economic growth more especially following the recession,” says Motlatsi Malope, the CBL’s director of corporate affairs.

“Local commercial banks have a fear of giving loans largely because they do not have data on the credit history of those who want to borrow.”

Malope says once banks have accurate information about customers they will be able to lend more.

Money will then start flowing into the economy.

That means more people will be able to borrow from banks to finance their start-up businesses or re-capitalise existing ones.

“We have been really worried about the low credit extension,” says the CBL’s head of financial institutions, Tsooana `Mokose.

“If it is easier to access credit it increases economic activity in the country and eventually increases economic growth.”

“According to a work schedule the credit bureau has to start in May next year,” she adds.

“However this is subject to the implementation of the national identity documentation system as it will rely on that.”

Finance Minister Timothy Thahane says the bureau will help people take responsibility for their financial affairs.

“That means people will not borrow recklessly in the belief that they can disappear without paying,” says Thahane.

“People will be able to live within their means if they know that there will be consequences if they don’t pay their debts.

“In the end it is for their protection and that of the economy.”

The benefits for business are also huge, he adds.

“Business will know if you are in serious arrears before they can give you loans or allow you to buy things on credit,” says Thahane.

“That means they will know the risk profile of their customers. That means they minimise the risk of losing money through defaults.”

The Millennium Challenge Account Lesotho will fund the project with US$ 417 613.

Under the same project, the CBL will introduce a central automatic clearing system to process cheques and other payments faster.

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