Payroll deductions strengthens the collateral base of borrowers

Payroll deductions strengthen the collateral base of borrowers, which has a major impact on credit deepening, a report on Namibia’s experience with microlending and payroll indicates.

The report, availed to Nampa on Monday, states that micro-lending plays a significant role in expanding access to credit and unlocking the productive capacity of people who had little access to financial services.

‘There exists a need to improve compliance standard to ensure that consumers are protected and not put at risk of unscrupulous and predatory lending practices. Although this study does not provide a quantitative analysis of the longer-term impact of payroll lending on credit deepening and the impact on economic growth, given the paucity of empirical data, the evidence presented does provide an overview of the contribution payroll deductions has had on the creation of a strong domestic credit market,’ the report reads.

There exists a need to quantify the impact of payroll deductions in Namibia on broader economic dynamics, especially in relation to demographic and geographical trends, which can be achieved through more rigorous analysis of more extended household datasets, particularly panel data, it adds.

‘The predictability of deductions coming off the payroll provides users with the assurance that financial obligations and commitments will be met in a timeous manner, guarding against potential arrears. In addition, payroll deductions are a credible collateral instrument, particularly valuable in providing access to credit for those with limited to no access to credit otherwise,’ reads the report.

Research of the report was conducted between June 2019 and February 2020. Although the research covers the period prior to COVID-19, much

of the analyses and findings are particularly salient given the economic devastation of COVID-19, it adds.

Source: Namibia Press Agency