The Debt Relief to Public Workers Will Impact Financial Institutions
“Adapt or Die”
By Amb. Emmanuel Mwamba
Despite the announcement by Government that it had released K255.3million to commercial banks and micro-finance institutions as the first step to effect the debt swap and debt relief to public workers, the Bankers Association of Zambia (BAZ) has issued a hasty statement reminding the workers that their obligations to these institutions remained active!
This appears to be a knee-jerk reaction and maybe a projection of difficulties these financial institutions are facing in light of major and many speedy changes affecting the industry.
This position to transfer loans of public workers to an institution with fairer and competitive lending rates, was inevitable as soon as Government created the Public Micro-Finance Company in 2013.
In this case, BAZ has been outwitted by a very innovative government process which has come up with very novel debt relief strategies for its employees.
Sooner rather than later, financial institutions will find themselves stuck with a lot of idle liquidity as government buys out the debts of its civil servants and public workers and parks the said debts away into the Public Service Micro Finance company at much lower interest rates!
This may actually turn out to be a blessing in disguise as financial institutions will be forced by the market to lower their lending interest rates and thereby benefit the economy as a whole.
It may also herald a serious check on the abnormal profits currently being made by some financial institutions that have been thriving on charging abnormally above the market interest rates!
I have also noted correspondence from the Secretary to Cabinet, Dr. Simon Miti who has directed that public service workers’ future borrowings from the market, which is based on the PMEC payroll, will require stringent approval process.
This will ensure that the regulations that civil servants should go home with a 40% netpay after all deductions are made, is adhered to.
This action will save public service workers from opportunistic borrowing and prevent the escalating predatory lending from the industry that was growing to harmful levels.
So the initiative to dismantle, swap or clear the debt burden of public workers, will have lasting impact onto financial institutions.
My advice to BAZ would be to adapt, adopt or die!