MICRO- FINANCE INSTITUTIONS AND PUBLIC WORKERS DEBT…THE STORY CONTINUES
By Amb. Emmanuel Mwamba
I took time to sit down with a dear brother and professional, Justin Chola of the Bayport Financial Services fame.
He recently retired to embark on pursuing other interests!
From what I saw, he is far from retired.
He helped shed some light on the many issues regarding payroll-based loans especially that Bayport alone has over a 100,000 civil servants as its clients.
He insisted that the Bayport model came about because a lot of workers were outside credit opportunities.
Microfinancial institutions such as Bayport grew their business as retail banking from traditional banks treated workers more of a cost to their business than an opportunity for financial inclusion.
Infact when he established the Mine Workers’ Union Financial Services in 2003, a fore-runner to Bayport, Banks had significantly scaled-down providing financial services to workers such as mine workers and civil servants and to this effect had even shut-down branches in areas they considered unprofitable.
He has also clarified that the Bayport model only lends to credit-worth civil servants and the aspect of affordability is key to determining who gets the loan.
This is a standing government regulation.
He has also emphasized that the loans disbursed to civil servants must meet the criteria where a worker must go home with a minimum 40%.
He also stated that unlike the banks, their loans to civil servants have a fixed term and have a fixed rate.
He also stated that Bayport had a dynamic information technology system that tracked their loans and recoveries, an important tool in managing mass small loans.
Looking at all facts gathered so far, it appears the debt trap has been perpetuated by traditional banks who have come to the space and relied on the salary amount that reflects in a public worker’s account than meeting principle of the 40% take-home pay.
So the microfinance institutions have largely taken up a role abandoned by traditional banks whose preoccupation has been to lend to government depositors money to the lucrative Treasury Bills!
As government increases its deficit, it has been far easier for commercial banks to participate in treasury bills and recoup huge profits than risk their money on that public officer.
But here is the issue.
Government recognises that the public service worker is heavily indebted and is trapped with a yoke of debt that must be removed.
To this effect, Government has provided three simple solutions to provide relief to the worker;
1. Dismantle the debt
2. Swap the Debt
3. Structure the debt.
Despite the presence of the Public Micro-Finance Company that is targeting the 200,000 public workers in Zambia, there still remains a role for microfinance institutions such as Bayport.
This is because the formal sector has over 1.1million jobs and still need credit and financial inclusion.