Ease loan processes to curb street lenders, banks urged

BoZ Building.

EASING the process of obtaining loans from Commercial Banks will curb the mushrooming of street moneylenders who charge exorbitant rates to vulnerable borrowers, economist Mambo Hamaundu says.
Mr Hamaundu observed that there has been an increase in street moneylenders due to the stringent process the public encounter when accessing loans from commercial banks, hence the need to ease the borrowing process.
“Usually one is required to give reasons for borrowing and how and when they hope to repay the money borrowed and sometimes lengthy process of evaluation before the funds can be given makes the public to shun banks,” he said in response to a press query on Friday.
Despite the lengthy process when obtaining loans, commercial banks’ interest rates are currently capped at 24.5 percent per annum while street moneylenders, most of whom are not regulated, cap their rates at 30 percent or more.
Mr Hamaundu also called for the enhancement of financial literacy programmes to educate the public on the importance of accessing financial services in formal institutions such as commercial banks and micro-finance institutions.
“There is a group of people who generally have fear of financial institutions. They will not have courage to go to a bank to inquire on the loan facilities available and the cost of borrowing. Enhanced financial literacy and the availability of products in the formal sector that address the needs of the consumers will be key,” he said.
Meanwhile, Bankers’ Association of Zambia (BAZ) chief executive officer Leonard Mwanza said while the increase in street moneylending has no impact on commercial banks, there is need for a policy shift to ensure that such businesses operate in a regulated environment to enable them conduct their businesses in a transparent manner.
“The key concern is  that this kind of borrowing operates in  unregulated and unrecorded environment and this poses a risk which is unknown not only to the banking sector but also to other financial service providers in terms of knowing the credit history of would-be borrowers,” he said.
Mr Mwanza said banks are required to provide and search a potential borrower’s credit history from the Credit Reference Bureau and it is impossible for banks to know the level of indebtedness of a borrower if they borrow from street moneylenders or shylocks.
He observed that most people who borrow from shylocks tend to have chronic financial problems and are unable to save money with banks and such borrowers usually get trapped into perpetual cycles of borrowing.
Mr Mwanza has since called on the public to live within their means and to develop a culture of saving to mitigate unplanned eventualities.

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