Gaborone — A University of Botswana (UB) economist, Dr Nathan Okurut has warned against borrowing money from the informal sector. Okurut was presenting a paper on credit and economy at the National Credit Convention whose theme was "an in-depth look into the environmental and economic factors affecting credit in Botswana."

The convention was held at the Botswana Bureau of Standards last week. The UB academic said when people have over borrowed money from the banks, they go to the informal sector where the interest rates are not controllable. He said the informal traders charge as much interest rate as 20 percent with some charging upto 30 percent.He said once a client has borrowed money from the micro lenders, he or she would always depend on them.

"When they have taken their money you would say I will come back tomorrow," he said. Okurut noted that borrowing purely for consumption is not sustainable, adding that sometimes things are so bad that some people are using their gratuity to repay loans while others use their pension funds as security for bank loans. "You should begin to think as a potential old person for those of you who want to access the pension funds," he said.

Okurut said clients who over borrow are very smart for the banks. He said at times such clients would get money somewhere and deposit it into their accounts so that they could be regarded as prime customers. The UB academic said credit markets play an important role in the economy. He said they play an important role by providing finance.

He also noted that the issue of price is critical. He said if the price is not right, it can lead to negative effects on the economy. Giving a key note address, the Manager Director of Credmark, Nkosi Mwaba said they launched the convention last year under the theme "empowering the credit profession," to create a platform for industry players to come together to share a common knowledge.

He said the inaugural event addressed specified credit issue which related directly to the credit manager as a professional and credit management as a business discipline in a modern business mode. Mwaba said this year, the convention looks into the broader environmental and economic features influencing credit both in the local markets and the global economy.

He said slight change in the interest rates has a significant impact on the consumer's disposable income.

He added that the level of one's disposable income influences their spending patterns and the economy is largely influenced by consumer spending. "Inflation on essential goods like food and petrol is another factor that affects the consumer's pocket." He said in United States, foreclosures or repossessions have risen up to 90 percent in a year as a result of the level of debt that consumers have become exposed to. He said the consumer simply cannot cope with the rise in interest rates and the decline in their asset values.

Mwaba told the convention that retail and convention banks have suffered record losses as a result of the sub prime crisis to the extent that some of the world's largest banks are facing closure. He said in the United Kingdom, the Bank of England has announced that it will be injecting 5 Billion Pounds into the markets in order to avoid raising interest rates. Back home, he cited, Lobtrans, which was one of the largest logistics companies that was exposed to millions of pula worth of debt to various financial institutions.

He said it is more than likely that the financial institutions will strengthen their lending criteria to minimise and manage their future risks more efficiently as a result of the losses.

Mwaba said the intention this year is to understand the bigger picture and view credit from a broader perspective hence the theme of the convention. "In order to be more efficient and adept in one's area of expertise, one must be well informed on matters of relevance.

It is important that we understand the events and factors influencing the state of the global economy in the order to fully appreciate and better equip ourselves for the benefit of our own economy and livelihood," he said.