Johannesburg - Local microlenders that have spread their tentacles across Africa may find themselves in a spot of bother if more governments forbid them from recouping loans from state payrolls.
The governments of the southern African nations of Malawi and Swaziland have banned microlenders from garnishing payrolls, putting their loan books at risk from potential defaulters.
In Swaziland, where the government is concerned about the over-indebtedness of its employees, microlenders have also been instructed to stop disbursing new credit to civil servants until they have found a new way of recovering loans.
City Press Business understands, however, that Malawi will allow microlenders to collect existing loans from government payrolls after the South African High Commissioner there, Ntshadi Tsheole, intervened on behalf of micro-financier Blue Financial Services.
New loans will be collected through debit orders.
The payroll ban debacle first emerged in Malawi in December, forcing Tsheole to write a letter to Dorothy Banda, Malawi's accountant general, in which Tsheole expressed grave concern about the development.
"This is a matter of extreme concern to us as it puts the business and loan book of Blue Financial Services at risk. It also destabilises the ability of Blue Financial Services and other such organisations to access further finance," Tsheole wrote.
Blue Financial Services, which has exposure to Malawi and Swaziland, says the ban on payroll collections was motivated by two completely different reasons.
"The issue in Malawi is purely political, while in the case of Swaziland the government there is concerned about its employees' over exposure to credit.
"When we entered Swaziland we knew that customers were exposed to a lot of credit. We have made a proposal to consolidate loans for customers and allow them to repay over a longer time at affordable instalments," said Blue's chief executive, Dave van Niekerk.
In the case of Malawi, where Blue runs a R100m loan book, the government decided to stop payroll deductions after opposition parties started asking questions about what it had been doing with the fees it earned from collecting loans on behalf of the microlenders.
"Rather than explain during an election time, the government decided to stop the deductions. I am confident we will get them back after the elections in April because they are being used as a political tool," Van Niekerk said.
It appears Malawi's government pockets about 2.5% of total collections.
Grant Kurland, chief executive of Bayport Financial Services, another South African microlender doing business in Africa, believed the payroll ban would put loan books in Swaziland and Malawi under pressure.
"It is fair to say that microlenders might suffer some losses in the short term," said Kurland, whose company has no operations in Swaziland or Malawi.
Kurland's prediction is not unfounded. When the South African government took similar action in 2001 many small lenders, including Unifer, a microlending unit of Absa, and banking group Saambou, soon collapsed like a house of cards.
Although many argue that the discontinuation of civil service payroll collections caused the disappearance of the two lenders from the local financial services landscape, others say poor lending practices led to their demise.
"It is not entirely true that they failed because of what the government did. Why did African Bank, which had a much bigger loan book, survive and they did not?" asked Van Niekerk.
Kurland believes microlenders need to lend in a responsible manner, otherwise payroll collections could be cancelled in other countries where South African credit providers operate.
"There is a risk that the cancellations could spread, but we need to manage this by behaving responsibly and collaborating with governments and other stakeholders like labour unions."
Blue Financial Services operates in 13 African countries, while Bayport has a presence in five.
Neil Grobbelaar, the joint managing director of Real People, a microlender operating in five African countries including South Africa, said the company purposely limited its exposure to government payrolls because over time civil servants became over-indebted as competition in the market intensified.
"Although we are in the payroll lending space, we have purposefully limited our role," Grobbelaar said.
"Our strategy revolves around penetrating the private sector because it presents more opportunities than the public sector."
- City Press