10 May 2018

Zambia: Loan Defaulting Must Be Criminal Offence

opinion

It is with dismay that we there is a growing trend of a poor loan repayment culture by individuals that owe banks and other registered financial institutions.

This starts from the domestic setup where a friend or associate of the community would hastily borrow money but exhibit a lethargic attitude when it comes to repayment.

Most often than not, we hear of such cases in the courts of law and upon adjudication, the culprits are either fined heavily than the amount owed or imprisoned.

Bank of Zambia (BOZ) deputy governor for operations Bwalya Ng'andu has also been taken aback by the culture, saying the trend of poor loan repayment has been marked by the Central Bank; among the major contributing factors for the surge in non-performing loans.

While banks are being asked to ease the cost of borrowing, there is also need for a reciprocal action by those borrowing, because a loan is not a gift and the obligation to honour it to the creditor must be met.

Bankers Association of Zambia (BAZ) chief executive Leonard Mwanza, was last year quoted as saying that non-performing loans had surpassed the allowable limit of below 10 percent and stood at 12.4 percent of the average bank loan book, of many banks.

The call for an improvement in the borrower's loan repayment culture by Dr Ng'andu and many other stakeholders is timely and a serious call for action.

Poor payment of loans is posing a threat to the country's financial system stability and we are perturbed at the vice because financial institutions do mete out some form of punishment such as property repossession on those that default loans.

Even the traditional Shylocks, fondly known for the infamous Kaloba (money lenders), do not spare defaulters.

So the question is: Why this growing trend of lethargic loan repayment?

All commercial banks have non performing loans and this is limiting the capacities of these institutions to mop up enough resources which can be re-lent at lower rates.

Hence the song about high interest rates continues going on and on.

Our view is that government, through the Ministry of Finance and BoZ must collaborate and formulate a refined piece of legislation to enhance existing laws that tame debtors in a habit of defaulting on loans.

For an individual to borrow money from the bank or any other source, they must have a clear and genuine agenda for which the resources would be used.

Therefore, loan default must be treated as a criminal offence because it is tantamount to defrauding of a financial institution.

We also urge the commercial banks to tailor their loan products in a manner that will not only entice a borrower, but clearly spell out the risks attached by default of that particular form of financial aid.

This will clearly enable the debtor to make an informed decision on whether or not going for the loan is in their best interest.

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