MASERU — Money-lending companies in Lesotho have indefinitely stopped giving out loans, leaving about 50 000 customers high and dry.
The Association of Registered Micro Lenders, which represents money-lenders in Lesotho, made the decision after three of its members lost a High Court case in which they were being sued by 162 customers for overcharging interest rates.
The 162 customers, who are all civil servants, sued Select Management Services, Afrisure (EEZY Management Services) and B-Blue Financial Services over “exorbitant loan instalment repayments”.
The customers’ court application was based on an alleged breach of the Money Lenders Order 25 of 1989.
The law stipulates a maximum rate of interest of 25 percent per annum.
But the micro-lenders were charging more than the stipulated 25 percent on loan instalment repayments.
The customers argued that the three companies were illegally taking extra money from borrowers in the form of management fees and other costs.
The High Court ruled that the money lenders should not charge anything more that the stipulated 25 percent interest on loans.
The ruling also meant that the extra charges that the money lenders were imposing on customers were illegal and should therefore be stopped.
The money lenders have since appealed against the ruling.
But while waiting for the Court of Appeal to decide the companies — including those that were not sued — have resolved to stop giving out loans.
“The judgment has forced all money-lending companies that are members of the micro finance association to cease granting further loans until such time as the matter has been resolved,” the Association of Registered Micro Lenders said in a statement.
The decision is likely to affect low-income earners who constitute the majority of the money lenders’ customers.
“The micro-finance industry serves between 40 000 and 50 000 customers per annum and provides much-needed access to education loans, funeral and emergency loans and loans for household improvements,” the association said.
Most of the people who apply for loans from the money lenders cannot qualify to borrow from commercial banks whose conditions for granting loans are stringent.
Commercial banks require that applicants have a track record and earn a certain amount saved if they are to be granted a loan.
They also require some form of collateral for those that want huge amounts.
Unable to meet such criteria, most low-income earners have turned to money-lending companies for bridging finance to cover funeral costs, school fees and other urgent family issues.
Money lenders have also provided capital for small companies that fail to meet the conditions set by commercial banks.
But now that tap has been closed.
While the money lenders are waiting for the Court of Appeal to make a decision — possibly in April next year — they have applied to the High Court for a stay of execution.
They are arguing that if not reversed the ruling will harm their businesses.
The money lenders also want the court to grant them an order to allow existing contracts with borrowers to continue on previously agreed terms until the Court of Appeal makes a decision.
“The judgment does not offer an economically viable business option for micro-financiers, who grant loans based on individual affordability, without the provision of security by the customer,” the statement said.
The High Court application will be heard tomorrow.