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Wednesday, July 8, 2015
- Nomsa Tsabedze is one of the many people at the Bunye Betfu, Buhle Betfu Credit and Savings Cooperatives waiting to apply for a loan to pay for her children’s school fees.
“Unlike banks, there is no collateral required before you get a loan from a cooperative,” said Tsabedze, adding: “If you’re a member of a cooperative, you’re guaranteed a loan depending on how much you’ve saved.”
For the past five years, ever since she started working as a clerk in the public service, Tsabedze has been saving and obtaining loans from the cooperative.
But while Tsabedze and thousands like her have chosen to put their money in cooperatives as opposed to banks, many in this Southern African nation feel that this poses no risk to the banking industry.
This is despite concerns by the International Monetary Fund (IMF) said that the country’s increasingly popular 230 savings and cooperatives pose a threat to commercial banks.
“This is because loans from cooperatives are more accessible to the Swazi population and do not have appropriate risk weighted safeguards,” reads the report released in December.
While commercial banks are viewed as risk averse and reluctant to lend, cooperatives have become the preferred lender for civil servants, in particular. There are four commercial banks in the country and one building society, which operates as a bank.
However, Central Bank of Swaziland deputy governor Sibongile Mdluli said that despite the pending economic crisis that started in 2010 when Swaziland lost up to 60 percent of its national budget because of a cut in revenue from the Southern African Customs Union, banks remain stable.
“Emerging risks and pressure from the macroeconomic environment are being closely monitored and there is no reason to believe that the financial sector stability is under threat,” said Mdluli.
While the deputy commissioner of Cooperatives and Development, Mike Gama, said that banks have nothing to fear from cooperatives, he told IPS that his society was forming its own bank and this would pose a threat to the banking industry.
“Banks are charging cooperatives exorbitant fees in respect of bank charges,” said Gama. “As a result, we’re in the process of establishing our own bank. For sure this is going to cripple the banks.”
Meanwhile, the IMF argues that cooperatives are not currently regulated and supervised, therefore, it is possible for people to fall into serious debt because one person might get loans from different institutions at the same time.
But Gama disagreed arguing that a person is eligible to join only one cooperative and that these institutions still subject those who want to borrow to the same regulations expected from banks and micro-lenders.
He added that a person could only borrow money from the cooperative they belong to.
“Cooperatives also ensure that the person’s debts do not exceed 33 percent of one’s gross salary as the law stipulates,” said Gama, adding: “Every cooperative has a policy on lending, saving and repayment. I guess the IMF was just generalising on this issue.”
He admitted that savings and credit cooperatives are gaining popularity among workers because they have flexible lending conditions and people have a sense of ownership.
Tsabedze told IPS that an appealing aspect of cooperatives was that the interest generated from the loan is also shared among members at the end of the year.
“You don’t generate a profit for somebody else but make money for yourself,” said Tsabedze. She said even the interest on a loan is lower than that charged by commercial banks – at eight percent for a three-year loan.
The IMF assessed the situation again during its visit to Swaziland From Jan. 26 to Feb. 1 where IMF head of mission Johannes Mongardini requested the government put in place a regulatory authority for non- bank financial institutions while shifting the regulation of cooperatives to the Central Bank in the meantime.
In the December report, the IMF revealed that Swaziland’s banks are more vulnerable than they ever were before owing to the fact that government owes them directly and indirectly through suppliers who have loans with the financial institutions.
In fact, this is not the first time that the IMF has sounded a warning on financial institutions. In November it noted that Swaziland’s commercial banks were under threat because people were withdrawing their deposits and taking them to South Africa.
Central Bank governor Martin Dlamini, however, dismissed the IMF’s assertion saying depositors were withdrawing their money to invest in unit trusts.
But the IMF through the Macroeconomic Vulnerabilities Stemming from the Global Economic Crisis: The Case of Swaziland report, emphasised that banks have more to worry about under the pending economic downturn.
“Although commercial banks have tried to reduce their direct exposure to government in 2011, the accumulation of arrears has led them to provide bridge financing to suppliers, increasing indirect exposure,” reads the report.
Government owed suppliers about 200 million dollars as of June last year and the IMF said if the financial crisis persists, loan portfolios of banks would also weaken.
Government’s dominance in the economy is also another risk factor to the banking sector because a number of state-owned enterprises and small and medium enterprises are heavily dependent on government for business.
So far the banks have experienced a marginal increase in non-performing loans as a consequence of the fiscal crisis.
“However, when the private sector does reach a point where the non-payment of arrears results in bankruptcies, not only will banks be affected but the whole economy may face a significant recession,” said the IMF.
And for now, there is nothing stopping people like Tsabedze from accessing loans while making money for themselves.