Strong desire for debt increasing
DR DANA Morris Dixon is pointing to the growing size of the local microloan market as an indication of the swelling appetite for debt. She observed that with stricter regulation and the emergence of credit bureaus to confirm the creditworthiness of customers, non-performing loans at deposit-taking institutions have been decreasing. However, loan agencies which are not as strictly regulated may be posing a challenge. “Borrowers are more likely to default on loans from less traditional facilities such as microloan agencies, which may be an even bigger issue, given the high interest rates charged and the demographic of the borrowers who use these agencies,” she says. To manage the situation, Morris Dixon said, the country either has to grow its GDP or reduce household debt, while growing GDP, or maintaining GDP at the same level. However, she said there must be a concerted effort on the part of citizens, Government and financial institutions to change that behaviour. “Borrowers need to be educated about the potential impact of acquiring too much debt,” she said. “And that process should start at an early stage, by educating young people to budget and to stick to their financial projections.”
TAKE STEPS TO PROTECT BORROWERS
The economist also said steps should be taken to ensure that financial institutions, particularly those that are not regulated, do not take advantage of borrowers by imposing interest rates which are onerous to repay. Also, she posited deposit-taking institutions should maintain stringent underwriting procedures to ensure that consumers do not need to restrict their consumption to satisfy their debt obligations. She stated that institutions should also encourage debt consolidation to assist consumers to benefit from lower rates. “In addition, lending institutions ought to explain the intricacies of different loan terms; and advise their customers and clients about specific ways to manage their interest payments, such as paying more than the minimum,” she maintained.