Micro lending or loan sharks?

First printed in The Namibian - 24 Jan 2013

Micro lending is a fast-growing sector and the Namibia Financial Institutions Supervisory Authority (Namfisa) has invited the public to comment on the industry.

Micro-lending refers to loans under N$50 000 which must be repaid over a maximum period of 60 months to the micro-lender, usually in instalments. According to Namfisa, micro-lenders are often unkindly referred to as ‘loan sharks’, but they consider it to be unfair to say the micro-lenders are always in the wrong when it comes to misunderstandings with their customers. They further point out that “while it’s true that micro-lenders’ interest rates are higher than bank rates, this is because they provide funds over a shorter period, and at greater risk of ‘bad debts’ if their customers fail to pay.”
The industry has grown rapidly and there are now almost 400 registered micro-lenders across the country supplying close to N$2 billion. Around half of this is supplied via pay-day lenders who provide loans with a repayment period of up to 30 days.

To understand the business model, let us first look at why interest is charged. In the beginning of banking, interest was used to offset the risk of providing the credit to the borrower. There are four risks (hazards):

• The costs incurred by the bank while providing the loan had to be repaid;
• Inflation means the lender will be able to buy less for the money as time passes;
• Scarcity – in other words once it is lent to a borrower at a specific rate, it cannot be used for another loan;
• That the borrower cannot pay back the loan

(Of these four, the only real difference the government can make is in reducing the risk of borrower’s inability to repay.)

The Ministry of Finance has determined that the annual finance charge rate may not be greater than 1.6 times the average prime rate in respect of a credit transaction. The prime rate is presently 9.25 percent and thus the highest a micro-lender should be allowed to charge would be 14.8 percent per year or 1.24 percent per month. From my limited research this week, I have determined that the rates of micro-lenders are 19.50 percent for loans longer than six months or 30 percent for short term loans that last up to 30 days.

There is some proposed self-regulation occurring with regards to clients with “over-indebtedness” – however this would mean sharing clients’ data across all micro-lenders. This would include sharing data on good clients - and this the micro-lenders are wary of. One possible answer is a national credit register where all credits of each person are recorded and thus ensuring no “predatory” marketing and less over-lending occurs. This would mean within your data there would be a “big brother” indicating when you have reached your debt level as determined by the legislation. I think you can see how this could mean less self-governance and a certain loss of self-determination and responsibility. At the same time, the organisation or corporate body that has the rights to hold your information must be well managed and regulated.

The suggestion of a national credit register was submitted to the Parliamentary Committee on Economics, Natural Resources and Public Administration in 2006 and has been part of discussions held with Namfisa in the creation of the Financial Institutions and Markets (FIM) Bill but I am not sure what is the status of such legislation since the Consumer Credit Chapter has been removed from the FIM Bill in March 2012.

My question to you, the reader, is: Do you want government to do something about the possible exploitation and would you accept the consequences of having a company keep all credit data about you and your family?
Follow me on twitter: @miltonlouw

Printed in The Namibian on 26 Jan 2013 

Innovation needed for home ownership

The Namibian - 16 Jan 2013

Home ownership is a problem in Namibia. According to estimates by the Minister of Regional, Local Government, Housing and Rural Development, Honourable Jerry Ekandjo in 2011 “..there is a backlog of about 300,000 houses and that 70 per cent of the population cannot access decent residential properties mainly due to issues of availability and affordability. This alarming situation calls for radical policy measures to restore the housing market.”

As a consumer activist it is not sufficient that I only state the obvious problems facing Namibians, but that I also apply myself to proposing solutions to these identified economic, social and cultural (ESC) rights. Thus I would like to share two ideas, the first to help reduce the household rental burden and the second to increase home ownership. Lastly, I suggest a policy of purposefully creating mixed income neighbourhoods.

Subsidised rental housing

In earlier days most large employers provided subsidised rental in houses and flats owned by the company. During the past twenty years most of these companies have reviewed their ownership of property and sold off their properties as “this was not their core business”. In this way, some of them have “increased” profits by selling the properties (TransNamib is a typical example), but at the same time decreased the salary value of their employees. In addition, in those years most municipalities were also providers of rental housing.

The social responsibility of companies and municipalities must be encouraged. The fact is that employees with less worries, make happier employees. The asset owned in the property by the company is also a positive income for their balance sheet.  The Government can also encourage subsidised renting by companies if they provide a tax exemption to these companies.

Rent to buy

I propose we develop 5,000 homes for lower income earners proportionally throughout the country. The National Housing Enterprise (or another appropriate body) should build quality houses valued at N$ 200,000 each and make this available to civil servants and other employees who already qualify for home loans, but cannot afford the present sky-high prices. Under the rent-to-buy scheme the local municipality must supply serviced land at cost price and allow the future home owner to pay off the land price over a five year period.

If the land loan is fixed at 5% interest over five years for a service plot valued N$ 50,000, the home owner would pay N$ 950.00 per month to the Municipality. The repayment on the NHE built house would amount to N$ 1320.00 over 20 years with a fixed interest rate of 5%. Thus the home owner would be paying a monthly amount of N$ 2,200.00 for the first five years, and only N$ 1,320.00 per month over the last fifteen years. In most cases, the home owners would reinvest this additional monthly saving they are used to paying to improve their properties.

Home ownership would increase not only the wealth of our people, but would also increase their participation in their communities, saving the authorities amounts otherwise used for policing etc. in areas where people are not proud home owners.

Mixed Income Neighbourhoods

Mixed income neighbourhoods by definition include different types of housing units such as flats, town houses and single family homes for people with a range of income levels. In other words various price ranges and housing preferences within one development. The town planners or even government can put guidelines in place for the number of type of each housing unit within a development to encourage integration of differing income levels within a community. Such guidelines will go a long way to eliminate neighbourhoods of concentrated poverty and combat residential segregation.

If nothing else helps, perhaps we will see the implementation of what one of my friends proposed on Facebook: “Write a petition and sue government for violating or neglecting its citizens the basic right to shelter as provided for in the constitution.”

Follow me on twitter: @miltonlouw

Printed in The Namibian on 17 Jan 2013 

A New Year’s Resolution for 2013

At the start of every calendar year, we take the opportunity to look at the past year and decide which things we wish to change. We then call these promises we make to ourselves “resolutions” because we promise to stop doing a negative habit in the future. For 2013, I want you to not only think of your bad habits you want to change, but also add a new “good habit”.

For the year ahead, promise yourself to “Mind Your Own Business”.

On the one side, this advice means that you should not poke your nose into the affairs of others or to put it better, “If it is not your business, do not make it your burden”. The second meaning is for you to look after your money affairs wisely – as if YOU are your own business. It is this second meaning that I wish you to take to heart this year.

Many of us are very hard working and conscientious towards our employee and make doubly sure that we look after the “boss’s money”. It is this same attitude we need to have towards our own money. Start with a simple exercise. Make up a table of four columns with the headings Month, Income, Spending and Saved. Now write down how much you earned every month of 2012, with the amounts you earned, spent and saved. If you are anything like me, you probably have very little in the last column. That is why we need to change our habits for the year ahead. We want to put some away for our holidays at the end of the year, and more importantly so we can have a January 2014 with some money in our pockets.

If you have good financial discipline, you should be able to save around 10% of your monthly salary and in this way be able to save the equivalent of at least a month’s salary by the end of the year. In other words you will be able to give yourself a thirteenth cheque.

If you struggle to save and not touch the money that is left in your account, consider opening a unit trust account through a financial advisor. The benefits are that the money can be directly debited off your account every month, you can increase the amounts quite easily and it takes around 2 working days to get your money after you inform the institution you wish to sell your unit trusts. Keep in mind, though you are able to get this investment amount out easily, it is suggested you use unit trusts as a medium- to long-term investment strategy for the best results.

With a small start (and less risk of failure because of small steps at a time), you can soon be seeing an improvement in your bank balance and in your mental health because of less worries.

Mind Your Business Online

As the New Year started, the newspapers have been reporting an increase in cyber-crime.

As we become more involved with online and mobile banking remember the following advice to ensure your personal business is protected:

·         Never reply to emails with personal information. No matter how good the email looks, no bank or financial service provider will use email to check your details.

·         Never click a link in an email to go to your banking web site.

·         Use a unique (and different) password on every site.

·         Use 2-factor authentication whenever possible. For example a pin code device in addition to your site password.

·         Be careful what you write online. You never know when a possible job interview can turn out bad because of what you wrote on Facebook or elsewhere.

·         Password protect your devices such as your cellular phone and computer.

I wish all the readers of the Namibian a prosperous, healthy and wealthy 2013. May we all work together in making our country more consumer friendly for the benefit of its residents and all its visitors.

Confusing pricing and its remedy

Recently I received letters from to consumer regarding their experiences with pricing of items.

“I wished to buy some material and was looking at various options in the Chinese shops in the area. I noticed a sign for material that was normally marked for N$ 29.00 was on special at N 19.00. As the pattern as agreeable to me, I proceeded to buy around 10 metres. When I came to the till, the shopkeeper rang up the purchase at the price of N$ 29.00 rather than the advertised discount price. I immediately brought his attention to this fact and insisted he ring up the total at the advertised lower price. I was shocked when the shopkeeper started shouting at me, and even physically assaulted me while chasing me from the shop. During the scuffle, I received a push and landed quite hard on the sidewalk. I reported the incident to the Police but they were only interested in the physical assault and could do nothing about the pricing difference between what was advertised and what was being charged. I am a pensioner and would like to know, as a consumer, what rights do I have regarding this issue?”

“While doing some shopping at one of the larger wholesalers in Windhoek I noticed a certain brand of mussels was showing a very good price on the labelling attached to the shelf. I double checked that the bar code of the product and the price label were the same and proceeded to take 6 cans of the mussels. I had lots of other shopping to do and filled the trolley by the time I had to pay. By chance I happened to look at the register while the shop assistant was scanning the cans of mussels and realised the price was almost double than that indicated on the shelf. I immediately objected and insisted she call a supervisor when she told me that it was a computer problem and she was not responsible. The supervisor was very helpful and went with me to examine the pricing on the shelf. When the pricing on the shelf was checked against the cans she realised that it was “an old price” still being displayed. Nevertheless, she assisted in checking through the mussels at the advertised price and had the price corrected on the price thereafter. How many times do this kind of thing happen because how can we remember the price on each product when we make our choices?”

In the case of the consumer who is a pensioner, very little can be done about the difference between product pricing and what is being charged at the counter – at present. The proposed Consumer Protection Act would address what is in effect misleading advertising, but more importantly, the law will prescribe certain deterrents such as fines and even possibly imprisonment of sellers intentionally misleading the public. My advice is to pursue the criminal charge of assault as too many of our business owners treat their customers without respect.

In regards to the consumer purchasing mussels; they have found a business that really believes in a healthy consumer relationship. The business you mentioned has not only got a policy of refunding you if the product is overcharged, but they also have a very responsive customer helpline which you can contact – even while you are in the store and having a problem. That is the kind of business e should all support by spending our money there.

After all, as a consumer the true power you have is in the colour of your money. Buy where you receive good service and deny your money to shopkeepers who treat you badly.

I would like to take this opportunity to wish all the staff and readers of the Namibian for the opportunity given to me to write my small contribution to making this country a better, happier place for us all. May you and your loved ones have a blessed Christmas, and may we continue in 2013 in improving our personal lives with better consumer protection awareness.

E-Governance needs to be prioritised

What is e-commerce?

Electronic commerce, commonly known as e-commerce, is the buying and selling of product or service over electronic systems such as the Internet and other computer networks. Electronic commerce draws on such technologies as electronic funds transfer, supply chain management, Internet marketing, online transaction processing, electronic data interchange (EDI), inventory management systems, and automated data collection systems.

For the consumer, e-commerce manes greater access to products, the ability to compare prices between products and services and save money on the cost of physically visiting the place of business.

The topic of e-commerce and its impact on countries such as Namibia have been researched since the late 1990s and found that the greatest impact on whether a country (and its entrepreneurs and consumers) will benefit is largely dependent on the attitude of government and its legislature. In short the following are identified as the government policies which have a detrimental effect on the creation of e-commerce Namibia. They include:

•          The insistence of government to hold onto and protect the state owned telephone network and in actual fact not allowing competition as all three cellular providers are actually owned by one government owned Mother Company (Namibia Post and Telecom Holdings). This results in inferior and high communications costs making e-commerce activities unnecessarily costly and uncompetitive.

•          The lack of government strategy or support to develop world class enterprises. A poor business, even if connected to the web and e-commerce enabled, will not succeed in a competitive world. Companies in Namibia are generally ignorant of international opportunities, the needs of those markets and how to service them properly.  To a large extent the Investment Centre and other government institutions focus on FDI (foreign direct investment) and not in assisting local enterprises expand to international markets.

•          The governments should be doing more to help enterprises identify international opportunities and take advantage of them.

•          Government insistence in maintaining ownership and management of logistics networks such as ports and airports resulting in inefficient, costly and unreliable services, which are incompatible with an e-commerce environment. 

•          Bureaucratic export and import procedures result in lengthy customs clearance times which nullify the benefits of speed in transactions offered by e-commerce. This affects service levels and increases the cost of business operations.

•          Restrictions on imports and exports such as permits and licences, and the time taken to obtain these permits, place barriers in the way of fast efficient e-commerce activities.

•          Namibia has exchange controls that provide a barrier for transacting in a foreign currency on the Internet.

•          Lack of an e-commerce friendly legal framework to provide recourse for companies. Current laws do not accommodate electronic contracts and signatures. Our country does not have legislation that deals with e-commerce concerns including enforceability of the validity of electronic contracts, digital signatures.

•          Lack of progress in setting government institutions to accept declarations electronically. This forces e-commerce enabled companies to produce paper and undermines the concept of paperless trading.

To have e-commerce, a country needs rich computer infrastructure, a functioning telecommunications network, and cheap access to the Internet. Its citizens need to be reasonably computer literate, possess both a consumerist mentality and a modicum of trust between the players in the economy - and hold credit cards.

E-Government is needed as well

For the consumer, e-commerce should also extend to government services as well. This is known as e-government and the Office of the Prime Minister has been responsible for establishing this as an integrated ministerial function at all levels, especially to our rural citizens.

The type of services should include:

·         Receiving notifications of the readiness of documents such as birth certificates, passports etc. through SMS or email

·         Payment allowed through electronic financial transactions (EFT) – including payments in regional and local level such as school fees, water and electricity accounts

If Namibia is to achieve goals such as Vision 2030, we must ensure consumers are part of this project and are the beneficiaries of political, economic, social and technological advances in the modern world.