Tratamientos térmicos de reestructuración

Participating MFIs reported that they only provide microcredit. In fact, a documentary review revealed that all microlenders (pay-day and term lenders) in Namibia are only allowed to extend microcredit and not to take deposits. The reported minimum loan size for the responding term lenders are in the range of N$500 to N$2 599 and the maximum between N$8 000 and N$50 000. These fall within the statutory requirement of a microloan not to exceed an amount of N$50 000, as stipulated in Section 1(a) of the Government Exemption Notice No. 189, discussed earlier in this chapter. Their repayment term is up to 60 months, also in accordance with the requirements of the same Exemption Notice (Section 1(b) of the Exemption Notice).

The fact that these MFIs only provide credit is considered undesirable, because generally around the globe MFIs are playing or are expected to play an important role of filling the financial services gap for the poor that exists in the economy due to market failure, and such a gap also exists in Namibia, as discussed in Chapter 2. This is because poor and low- income people, like those in more advantageous economic situations, need a variety of basic financial services (including savings, insurance, money transfers, etc.) and not just credit (CGAP, 2012). In fact, Ledgerwood et al. (2013) argue that going forward, a great deal

of the demand from poor people will outstrip that of products and services on which the microfinance industry has focused during its first three decades of existence. Accordingly, they are of the view that the demand for savings may surpass the demand for loans and the demand for general-purpose loans may outstrip the demand for micro-business investment, while that for long-term savings, borrowing and insurance is as strong as that for short-term savings and loans. As such, providers of financial services (including those in Namibia) are expected to develop sustainable low-cost ways to provide such services and respond to the demands and needs of the poor.

In view of the fact that the surveyed institutions (together with pay-day lending institutions) form the majority in the Namibian microfinance sector, the researcher further argues that it would have made a difference on the financial inclusion front, i.e. it would possibly have helped reduce the financial exclusion rate that is still a problem in the country,88 _{if these}

institutions were to offer other financial services as well. Offering credit only as a product creates a gap in the financial system referred to above in terms of institutions that would provide comprehensive microfinance products and services, including microsavings, micro- insurance and money transfer services in addition to microcredit. The researcher has noted that commercial banks in the country have started to attract small savers through own efforts, but also through the statutory-imposed BBA89 _{introduced by the BoN in 2013, and}

are therefore complementing the very small number of MFIs that provide microsavings services in the country, which were discussed in Section 5.2. Micro-insurance, however, remains a relatively new concept to the Namibian market.

The survey also found that a fixed interest rate of prime rate times 2 is charged by all the surveyed MFIs in accordance with the caps imposed by the Usury Act and its accompanying Exemption Notice provisions that regulate them (Exemption Notice No. 189 of 2004), details of which are discussed in Chapter 6, which appraises the legal and regulatory environment of the Namibian financial sector.

The issue of interest rate ceilings, i.e. the limits on the level of interest rates that financial institutions are allowed to charge, such as these caps, is among the debated issues in literature, especially in as far as MFIs are concerned. While the argument often advanced as justification for the caps is the high cost of loans and possible predatory lending practices (i.e. consumer protection), it is also counter-argued that high fees and charges keep MFIs

88 _{Financial exclusion rate is estimated at 31 per cent by the FinScope Namibia 2011 Survey.}

afloat (CGAP, 2006) and are needed for their sustainability, especially when considering the high transactions cost involved in their lending processes, given the tiny transactions they have to deal with and the need for face-to-face interactions with clients as a substitute for formal collateral (Helms & Reille, 2004). Imposing interest rate ceilings is therefore said to have an effect of making it difficult for MFIs to cover their costs, and this could have the resultant effect of either driving them out of the market or even becoming an entry barrier to potential MFIs (Helms & Reille, 2004). When this happens, it can lead to a lack of access to financial services by poor clients as MFIs retreat from the market due to their inability to cover operating costs.90 _{One good example of this is Zambia, a neighbouring country to}

Namibia, where the recently introduced interest rate limits91 _{have been reported to not only}

have led to an unintended consequence of constraining the credit sector, but also to increased average loan sizes and tenures as MFIs attempt to remain sustainable and profitable (Brouwers, Chongo, Millinga & Fraser, 2014). A resulting consequence of the lack of access to financial services would be for poor clients to revert to informal credit markets, which are even more expensive, such as money lenders (Helms & Reille, 2004), and this would have a backward effect on the efforts of enhancing access to finance for the poor, low-income people and SMEs. Striking a balance between the above views (i.e. taking the cost of credit and the MFI sustainability aspect into consideration) is therefore important. What is necessary is for regulators to have an enabling legal environment in which MFIs can thrive and which enhances competition so that competition would eventually bring down interest rates (Armendáriz & Morduch, 2010).

Most surveyed institutions also reported on a practice where they offer credit life insurance as a condition for providing loans to clients. In this regard, a loan is only extended on condition that a client takes out credit life insurance, which can be considered as forced insurance. The fact that these institutions provide uncollateralised loans in Namibia can be taken to mean that they are using credit life insurance as both a risk-mitigating strategy and an additional revenue source, and this could be viewed as unfair towards the borrowers. This is because from a consumer protection perspective, conditional selling would be viewed as putting undue pressure on clients (who may not be financially literate) to buy unwanted products and just end up taking what they are offered, the consequences of which could be detrimental. The Centre for European Policy Studies (CEPS, 2009) states that practices that

90 _{Helms and Reille (2004) cites research by ACCION International, which found interest rates ceilings in Colombia to have}

repressed the development of commercial microfinance in the country, primarily by discouraging microfinance NGOs from transforming into licensed financial intermediaries

91 _{Zambia introduced interest rate ceilings for commercial banks in 2012 and for the NBFIs and microfinance sector in 2013, but}

restrict customer choice without producing efficiencies for consumers are considered to be unfair, if not objectively justified.

There is however vastly increasing literature on the need for micro-insurance to accompany microcredit, as it is considered not only to serve as security for the lender, but that the client also has huge advantages from being insured. According to Shand and Angove (2013), credit life insurance protects the lender against defaults on repayment and provides them with an opportunity to earn additional fee income in the form of commission and administration fees, while at the same time allowing them to offer a broader set of financial products. On the side of the borrower, they assert that it protects the dependents of the client from the obligation to repay in the event that the borrower (policyholder) dies and/or the borrowers themselves in the event they become retrenched or disabled. Shand and Angove (2013) further view credit life insurance as having the potential of playing a significant role in supporting access to finance and as a stepping stone to economic development across a broad base, given the decreased risk it provides to lenders. They further argue that credit life insurance is often the first insurance encounter for low-income consumers. In fact, credit life insurance has been reported to dominate micro-insurance worldwide, as evidenced by a global insurance scan in the 100 poorest countries by the Microinsurance Centre in 2007, which found that 36 per cent of all the insured and 60 per cent of life products were directly linked to credit schemes (Roth, McCord & Liber, 2007, cited by Calvin & Coetzee, 2009).

In South Africa, a country where micro-insurance has been most prevalent relative to other countries in southern Africa, it is estimated that credit life insurance constitutes 40 per cent or more of the total formal micro-insurance in the country (Calvin & Coetzee, 2009). An investigation by Shand and Angove (2013) that sought to gauge trends in the consumer credit insurance market in South Africa from the customers’ perspective found as questionable the value derived by South African consumers from credit life insurance and concluded that credit life insurance served the interests of the credit provider in the first instance.92 _{They particularly found credit life insurance to be seemingly more expensive than}

life policies available on the open market, and that they limited the ability of consumers to exercise freedom of choice for the possible cheapest available option in the market. They also found information on credit life insurance to be insufficiently disclosed. While no study could be located on Namibia on this issue, the researcher is of the view that similar findings

could be applicable to Namibia. As such, while some of the literature discussed earlier in this section suggest that this product, offered by the surveyed institutions in Namibia as a condition for obtaining a loan, may prove to be beneficial to the clients of those institutions as well, the above findings on South Africa present good lessons for Namibia. The researcher therefore sees the need for Namibia to ensure that regulation on insurance programmes for the poor balance the above discussed competing outcome possibilities.