Editor's Comment

Poor loan repayment culture must change

GOVERNMENT is keen to empower all citizens so that they can contribute to the socio-economic development of the country.
That is why Government has established various platforms to help youths, men and women who have ideas how to run businesses.
Apart from the Citizens’ Economic Empowerment Commission, there are the women and youth empowerment funds.
All these funds are revolving so that when they are given out, they have to be repaid according to the agreed schedule to enable other citizens on the waiting list to access the same money, too.
But as President Edgar Lungu learnt two days ago, the repayment culture among our people, especially our youths, is very bad.
It should not be a surprise because culturally, we Zambians love free things and always want it that way.
How else can one explain a situation where, of the K52 million Government gave out to youths in 2015 as empowerment, only K2.6 million has been recovered?
This is a bad culture, which is common in Zambia, where people just do not want to pay back when they get money, especially from Government.
The other reason for poor loan repayment plans is because the borrowers have no business acumen and thus tend to overstate the expected profits.
That is why their businesses fail.
This is the reason Government has been experiencing the low recovery on loans. Most youths do not engage experts to help them in this process.
This lack of mentorship opportunities for young people to develop and expand their businesses affects their capacity to generate profits for their businesses
Therefore, Government must first and foremost establish an incubation stage during which recipients should be trained in basic management and financial systems in the application of loans obtained.
There is need for a change of mindset and to do away with the ‘niva Boma’ [It’s for government] mentality.
A culture of entitlement to Government funds and, therefore, poor accountability pervades our entrepreneurs. Therefore, there is less compliance to financial obligations.
The financial institutions are further incapable of monitoring and evaluating programmes they fund due to lack of capacity.
The implications of this poor compliance to financial regulations and poor recoveries mean that the funds cannot be revolved, thereby denying other youths the funding.
Another factor is that most youths who run businesses lack fall-back plans to address capitalisation of their businesses.
If a business is run on profits only, it’s likely to collapse because profit alone is not sufficient to create new products or acquire new technologies in the short term.
And also the reliance on profits only lowers the capacity of a business to expand its land and machinery; it is enough only to maintain the operating costs of a business.
This is what should be done:
• Equitable distribution based on quality evaluation of recipients’ competencies.
• A system of incubation be in place prior to recipients being funded.
• Consistent evaluation and monitoring of projects is required.
• Sanctions in event of failure to comply with conditions of repayment to be instituted without fear or favour.
The major drawback is the increase in non-performing loans pushes interest rates up.
Taxes may also go up as Government seeks to cover the gap. And in covering the gap, Government frequently goes to the market to borrow, thereby pushing private-productive sectors on the fringes and making it difficult for them to access credit.

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