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Lesson for the central bank

ON Friday the Court of Appeal upheld an earlier ruling by the High Court which said local money lenders were creaming off borrowers with exorbitant interest charges.

The court said it was illegal for the money lenders to charge borrowers anything more than the stipulated 25 percent interest rate.

It said the initiation, administration, membership, insurance and collection fees that the companies have been charging for years are illegal.

That it took a group of desperate women who decided to fight the money lenders to get this landmark judgment is both pleasing and worrying.

It’s pleasing because these women, who hired a lawyer on their shoe-string budget, have ended years of injustices that the borrowing public has suffered at the hands of the loan sharks.

It’s however worrying that this brazen abuse was being perpetrated against the people by a sector regulated by the Central Bank of Lesotho.

Where was the central bank when the companies were ripping off people in broad daylight?

This judgment has once again exposed the failure by our central bank to closely monitor and regulate the financial sector of this country. This is not a first, though. 

Many will recall that it was the central bank that slept on the job when MKM, once a properly run burial society, morphed into a dangerous pyramid scheme with disastrous consequences.

It took years before the central bank could act decisively on MKM. But by the time it was eventually shut down MKM had grown into a monster and as we speak nearly 300 000 — one in every six people in the country — have their money locked up in MKM.

The chances of them recovering the full amounts they invested in that dubious scheme are quite slim, if not non-existent. Under the central bank’s watch numerous other pyramid schemes flourished and their directors lined their pockets with impunity.

And when the Ponzi schemes crushed they took with them people’s savings and pensions.

The trouble surrounding the money lenders should remind the central bank that it still needs to closely monitor the financial sector in this country.

Surely the nefarious activities of MKM and the disastrous consequences they spawned should have taught our national bank something.

Yet in saying this we are not in any way celebrating the demise of the money lending sector.

Far from it. The closure of those companies will strike a hammer blow to our economy.

It means more people will be jobless.

For a country with an unemployment rate of 45 percent and a frail economy this is not good news.

The closure of these companies will affect the thousands of people who, for years, have relied on the money lenders for bridging finance.

Because unlike banks these companies don’t demand huge collateral for their loans many poor people flocked to them.

We hope that they will not close altogether.

We also hope that the central bank is closely watching other sectors.

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