Botswana credit consumers less risky – TransUnion

Botswana credit consumers are less risky in terms of their obligations to credit compared to consumers in South Africa and Kenya, TransUnion reports.

Speaking at the TransUnion Summit in Gaborone recently, Director of Financial Services- Research and Consulting, Weiham Sun said their recent survey on household income changes over the past three months, reflects that in Botswana 35 percent households experienced decreased incomes. He said incomes are important because they determine the patterns of spending for consumers and their capacity to spend, and for those who are credit active the capacity to create more credit. “From consumer credit risk point of view, Botswana scores five out of a 10- point score, the best in Southern Africa, while in South Africa, credit score was at eight out of 10. So from an exposure point of view, Botswana consumers are less risky,” Sun said. Sun explained that among the top six reasons for changes in current household income are job losses at 29 percent for Botswana.

Sun attributes this, to the fact that some consumers lost their incomes as a result of layoffs at the height of the Covid- 19 pandemic. Others had diminished incomes as a result of inflationary pressures. Starting a new business has also been seen as a factor that influenced changes in household incomes.

“This one is a very positive change in household income, though we do not see it in a lot, however we are hoping to see consumers starting new businesses that would drive household incomes in an upward trajectory and acting as an alternative,” Sun said.

He is rather disappointed, however that about 75 percent of household incomes in Botswana and South Africa compared to Kenya, are based on wages and salaries. In other emerging markets, Sun says the dependence on salaries and wages is much less.

Sun revealed that consumers in Botswana are however optimistic about their household income expectations for the next 12 months, adding that economic opportunities emerge with formulation of government policies and build confidence for consumers.

He added that consumer expectations on paying at least one of their bills and loans in full in Botswana is much more positive.

“Even the World Bank and IMF see consumers in Botswana as having capacity and capability to repay their debts,” Sun said. He added that about 70 percent indicated that they had the capacity to pay, however the 32 percent are looking at paying partial amounts.

Their survey also revealed that 24 percent of consumers who are unable to service their debts in full plan to use money from savings, while 22 percent plan to borrow money from friends and family to pay back their debts.

Sun explained that while there are products structured to enable consumers to pay off their debts seamlessly, credit providers would not want consumers to be over indebted.

In South Africa, for instance, Sun has discovered that people are using personal loans to settle debts. He attributes this trend to the fact that personal loans have fixed interests rates and instalments are easier for consumers to pay. Sun said it is undesirable to see increased credit usage, like credit cards, because they can place consumers in further debt.

TransUnion has also observed changes to consumer household budgets in the last three months. In Botswana compared to Kenya and South Africa, consumers have cut back less on discretionary spending, as well as cancelation or reduced digital services.

In addition, only 13 percent of local consumers added subscriptions and memberships of different services like gym. Sun added in terms of debt and savings, consumers in Botswana are not saving as much in emergency funds, as compared to consumers in South Africa and Kenya.

The survey also reveals that there is increased usage of available credit for local consumers, however, they save less for retirement.

Sun adds that in Botswana 95 percent of consumers believed having access to credit and lending products is essential to achieving financial goals.

However, only 33 percent believed they currently have sufficient access to credit.

Despite low access levels, only 34 percent planned to apply for the new or refinance existing credit in the new year.

“Those who intended to apply cited these as top three products, personal loans, home loans and student loans,” Sun says.

The TransUnion survey also revealed that 28 percent of consumers in Botswana abandoned their application for credit because the cost was too high, while some decided that they no longer needed new credit. Some consumers, according to Sun abandoned their credit applications after finding alternative funding sources, while for some it was unsatisfactory credit history.

TransUnion recommends that credit service providers should leverage credit education and promote awareness, promote financial literacy and create a learning experience for stickiness and loyalty.

They also believe that it is also important to streamline the acquisition experience.

“Providers should leverage digital on boarding solutions, smooth out cumbersome processes and minimise applications abandonments,” Sun said, adding that they need to also recalibrate pricing strategies to enable more tailored solutions.