Martin Endjala
It is an open secret that with the continued upward inflation rate, many Namibians that live below the bread line, find themselves in a dilemma when it comes to sourcing loans because many do not qualify for bank loans and have to rely on cash loans.
This is because cash loans are believed to be obtainable faster when compared to banks and such loans also have short repayment terms. Obtaining a cash loan also does not require the provision of any security by the lender.
“Cash loan extend facility on an unsecured basis, don’t require collateral for you to get approved. This means you don’t have to put your home or another asset up as a guarantee that you’ll repay the loan,” Economist Josef Sheehama said.
Sheehama said that the easy accessibility to cash loans made easier has a downside.
“If you are unable to repay the loan based on the agreed-upon terms with your cash loan, you’ll face significant financial and credit consequences. You will need to provide sources of income and the amount required. People consider cash loans because it is much easier to get loans. Generally, bank loans have the cheapest interest rates. The rates you pay will be cheaper than cash loans or high-interest loans. It is very expensive to borrow money from a cash loan,” Sheehama warned.
The quick turnaround time is said to often makes it difficult for borrowers to repay the cash loan by the due date.
“This means you get a loan today and pay huge instalments at your payday and some cash loan asks people to surrender their original personal documents which are against the microlending act,” he said.
Furthermore, in terms of banks, with good credit, a person can qualify for an unsecured personal loan, this is because they often have flexible uses for emergency situations.
Personal loans are typically instalment loans given out in a lump sum with a determinable interest rate but influenced by Repo Rate.
They offer better interest rates than cash loans and can be paid back over a set period, traditionally 60 months.
However, the downside of these loans Sheehama noted, is that banks often require collateral which many people are not in possession of to provide securities, against this background they will opt for a cash loan and also, the turnaround of literal lengths compares to cash loans.
If you fall victim to the high interest and service charges and fail to repay the loan in a timely manner, you are likely to be subject to collection action and your credit rating will be negatively impacted.
You need to be sure not to be indebted, this means you can no longer afford to pay your monthly instalments, particularly when you are facing high interest and high inflation.
The problem is more concerning when debt rises faster than your repayment capacity. One way that excessive debt becomes a problem is when these transfers adversely affect the economy.
Notably, the trend among corporates in recent months has been to pay off their existing debt rather than take on new loans, as evidenced by the fact that corporate credit growth averaged a meagre of 1.9 percent in the last five months after peaking at 8.2 percent in August 2022.
Conversely, household credit uptake grew by 5.0 percent in February 2023 and is currently the main driver of overall credit growth from commercial banks. At the same time, household credit uptake has persistently increased at a higher rate each month after reaching a trough in August 2022.
According to Simonis Storm Economist Theo Klein, the total debt in the private sector amounted to N$118.9 billion of Namibian households in February this year and corporates, together with non-residents, reflecting an annual increase of 5.1 percent based on the preliminary National Accounts.
The total private sector debt constitutes about 58 percent of 2022’s preliminary
GDP, with household debt, comprising 32 percent of GDP and corporate debt 22 percent of the GDP.
Moreover, credit growth increased by 3.1 percent by the private sector in February 2023, compared to 2.6 percent in the prior month. Credit growth remains below the six-month moving average, which indicates that credit uptake is on a slowing trend.
Credit uptake was primarily driven by households, rising by 5.0 percent in February 2023 compared to 4.9 percent in January 2023.
The biggest drivers of household credit growth were other loans and advances (17.8 percent), and overdrafts as well mortgages which both increased by 2.8 percent, while other loans and advances included credit cards and personal loans debt instruments.
