Since dollarisation, Zimbabwe has seen a gradual increase in the number of financial institutions offering personal loans to individuals.
There have been concerns that if we are not careful as a country most people will sink in debt and in the process create a vicious circle of perpetual borrowing.
NewsDay Chief Business Reporter Mernat Mafirakurewa spoke to Spectip Investments operations director Innocent Mugwagwa on these and other issues.
The following are excerpts of the interview between Mernat Mafirakurewa (ND) and Innocent Mugwagwa (IM) on the issue.
ND: Could you give us a brief background of what your company does? IM: Spectip investments is a locally owned company formed in 2006 founded with the vision of improving company’s cash flows through provision of sound and innovative debt management products. We have two divisions, Spectip Credit Bureau and Spectip Debt Collectors. Our products are credit vetting, debt recovery, credit consultancy, debt factoring, debt counselling, advisory and training.
ND: We have in recent months witnessed an increase in the number of institutions offering personal loans. To what extent should individuals seek loans to solve their financial problems? IM: Money lending if correctly managed can help reduce levels of poverty in any country, but it can be a time bomb if not properly done. Crises in countries like Bolivia in 1990 and Morocco in 2008, have acted as a reminder that increasing the volume of credits doesn’t necessarily lead to economic growth among microenterprises.
Indeed, if the solvency of borrowers is not taken into account, the credit offer becomes disconnected from real needs, leading to over-indebtedness among the poor.
The entire sector can then collapse very quickly, thus affecting developing countries economically as well as socially. As the demand for credits increases, microfinance institutions must ensure that default payment risks are low (or evaluated and controlled), and refer to a reliable source of information for clients’ credit histories.
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ND: How critical is it for a country like ours to have credit bureaus? IM: Credit bureaus play a pivotal role in most developed financial service markets in the world. For lenders they provide objective information on the level of indebtedness and payment performance of potential borrowers, allowing institutions to discern between different types of clients and to differentiate between good and distressed or opportunity-driven borrowers, which makes it critical for our country to have one.
ND: I understand that some of your work also involves debt collection. How difficult is to deal with people or institutions that are over-indebted? IM: Indeed and it is very difficult to deal with such institutions. Look at what happened with Jaggers and Lobels! Most credit grantors were affected and they ended up writing off various debts which obviously is a loss to the companies.
ND: Given what is happening elsewhere in the world where, for example defaulters end up committing suicide, is it healthy to for people to be dependent on loans — if not what should they do? IM: If properly managed — like in Ecuador, which uses credit bureaus to manage credits — a country can benefit from a positive impact, both for microfinance and clients. Risk visibility has increased, defaults have decreased, the transaction process is faster, whereas costs have decreased and the number of clients and loan amounts have increased.
ND: Traditionally Zimbabweans are known for using cash. How do you think they have reacted to this new phenomenon of credits? IM: This phenomenon of credits has trapped a lot of people. Look at cases from the courts and deputy sheriff. Many houses and properties including households and cars, have been sold by credit grantors trying to recover their debts. It’s very sad and it’s really a big issue.
ND: How effective is your credit rating given that Zimbabwe does not have centralised national institutions to deal with debt issues? IM: Spectip Credit Bureau decision-support tools enable private and public entities to gain greater perspective into the risk profiles of individuals and companies, thereby empowering them to make better informed business decisions.
We collect, collate and disseminate credit-related information from multiple sources including government departments, financial institutions, businesses and consumers. This includes the credit history and identification of individuals and companies registered in the country.
We use stringent procedures to ensure data is relevant, accurate and up-to-date. All our data is managed and processed in a way that ensures utmost protection and integrity.
ND: How would you advise anybody thinking of getting a loan? IM: Our advice is that before getting into a debt, approach us so that we can assist you. We offer advice on credit and training and if already in debt, we offer debt counselling, debt consolidation and ways to come out of debt.
