“Prosperity is a way of living and thinking, and not just money or things. Poverty is a way of living and thinking, and not just a lack of money or things.” - Eric Butterworth
Understanding Banking
Let me start by repeating the words of a friend who is a banker in Windhoek, “banking is the profession with one of the best marketing departments around. Imagine trying to convince the first customer that their money was safer with the bank than in their own hands, and best of all, which the customer would need to pay fees to deposit and withdraw their own money.”
Even now during the financial crises throughout the world banks are still succeeding in motivating clients to give them their money. Today, most of us feel safe with our money in banks because “we are many and government will not let it fail”. The term “moral hazard” is used to explain why we take these risks.
All over the world people often complain about banks. This ranges from bank fees, interest charged, to repossession of vehicles and homes.
In Namibia this is no different. The late Hon. Reinhard (Kalla) Gertze, Member of Parliament, proposed an investigation into the financial institutions through public hearings of the Parliamentary Committee on Economics, Natural Resources and Public Administration. They held public hearings on bank charges and regulations on 14 July 2006 in Windhoek. One of the submissions outlined why interest is charged.
Why is interest charged?
In the beginning of banking, interest was used to offset the risk of providing the credit to the borrower. There are four risks (hazards):
- The costs incurred by the bank while providing the loan had to be repaid;
- Inflation means the lender will be able to buy less for the money as time passes;
- Scarcity – in other words once it is lent to a borrower at a specific rate, it cannot be used for another loan;
- That the borrower cannot pay back the loan
Of these four, the only real difference the government can make is in reducing the risk of borrower’s inability to repay.
It is my opinion that this can be addressed through the increased usage of Information and Communication Technologies. As an example, I prepared a discussion paper on the need for credit bureau, and the establishment of an economic database to address this need which is attached in the annex of the book.
Through the sharing of information between public and private sectors (with the appropriate legislation to prevent abuse), a reliable source of information can be provided which will necessitate the banking institutions to become more competitive to attract clientele. This clientele in turn will be able to negotiate for better rates, and lower charges, if they are aware of their own credit worthiness.
The downside of Credit
"Credit buying is much like being drunk. The buzz happens immediately and gives you a lift.... The hangover comes the day after." Joyce Brothers
Many consumers struggle to repay their debts. I have heard percentages as high as 70% of income is being used to repay debts. Many young people are ending up financing their lifestyle (which they cannot afford) through credit. Many consumers need help with restructuring their debts. The Namibian Financial Supervisory Authority (NAMFISA) is proposing a Financial Institutions Bill that will provide for debt counselling as part of the assistance to consumers.
Before discussing the new debt counselling I would like to add that there are other factors at work besides the servicing of debt; they include income volatility, legalised gambling, bigger medical bills and a cultural shift that has de-stigmatised bankruptcy and bad debts.
So what is the difference between the present administration order and the new debt counselling?
- The idea behind Debt Counselling is to help clients reduce their overall debt with creditors in the most cost effective way. An Administration order can take a large part of your disposable income to offset the relatively high cost.
- Debt Counsellors are proposed by the Financial Institutions Bill in order to specifically deal with people in trouble with their finances. These debt counsellors will have the support of and have to be approved by the Government. An administration order is presently used with the view to resolve an individual's over indebtedness. However this method can be very costly and with various limitations.
- Unlike under an administration order, 95% of your monthly payment will go to your creditors under a debt counselling plan. A debt counselling plan will manage all your payments to creditors from a central distribution agency on a monthly basis on your behalf.
- Under administration, distribution by Lawyers is only done once every three months after all their costs have been deducted (In some cases it can take longer than a year before your creditors' receive any form of payment).
Remember, that once a debt counsellor has accepted your application, they will inform all your creditors that you have applied for debt counselling. You will not be able to access any further credit until your debts have been repaid. You will even have to cut up your credit and store cards such as Edgars, Markhams, etc.
At present, there are no accredited debt counsellors in Namibia. This is a new occupation and training will have to take place to ensure the consumer gets the full benefit of this new law.
Training of Debt Counsellors
The new Act could become law before the end of 2009. Once enacted, there will have to be a process of training Debt Counsellors to assist consumers.
If we follow the proposed Bill (as it is copied from the Act in RSA) to become a debt counsellor, Namibians have to be over the age of 23 and have a minimum of two years experience in accounting, finance, legal, para-legal or credit fields. Aspiring debt counsellors will also have to have a clean credit record - have no debt-related judgments against them at the time of applying and not be under administration.
A debt counselling course over five days covers general outcomes such as listening and communication skills, interviewing skills, as well as budgeting and personal financial management know-how. It also requires specific outcomes regarding the debt counselling process as stipulated in the proposed Bill - from filling in an application for counselling to obtaining a clearance certificate.
Personal Experience with Debt
In 2004 I returned from Germany and started up my company, NamBizDotCom, which is registered as a Close Corporation. I was working on two contracts at the time involving SME’s. The first was ins cooperation with SMEs Compete and included a trip to South Africa and Angola to look for possible partners in these countries. The second contract was for the Institute for Public Policy Research (IPPR) and was to complete the SME Impact Assessment Survey for 2004.
Unfortunately, my father was declared disabled and unable to continue working. He was 54 and no longer able to generate an income. This started a financial calamity that still haunts me till today.
Firstly, the bank, FNB, passed on the insurance claim to Metropolitan Insurance who did not want to accept his disability and therefore allow for his insurance to cover the cost of the home loan. The buck was passed between the two institutions and this delay meant my father was in arrears on his home loan. The bank therefore duly put his house up for auction to recoup their loss, and advertised this in the local newspaper.
As is my duty, I immediately went to my Father’s aid. After all, my two little brothers (aged 8 and 2 years old) would not have a roof over their heads if the bank and insurance giants were left unchallenged. Suffice to say, after a year of travelling between Rehoboth where my Father’s house was, and the bank head office in Windhoek, we were successful in getting the bank to settle his home loan through the insurance claim. (I must add tribute to the late Lazarus Ipangelwa, then MD of First National Bank, who allowed us a chance to put our case to the right person at the bank.)
In the meantime, my own business had closed and I was responsible for the debts to the amounts of +/- N$ 8,000 to Trip Travel, and +/- 20,000 to Institute for Public Policy Research. This second debt had incurred legal and other sundry charges and was submitted to the courts as an amount of over N$ 25,000 – which is the threshold for admittance to the High Court rather than the Magistrate’s Court.
So, I returned to Windhoek in January 2006 to face the two debtors, the one in the Magistrate’s Court and the other in the High Court. I take full responsibility for these debts and have attempted to pay the debts back through monthly payments of N$ 200 and N$ 500 respectively. Unfortunately, these debts are also listed on my credit record, which is accessed by most employers today and I found it difficult to find gainful employment after my return to Windhoek. Since then, I have spent three years as an hourly-paid lecturer and working part-time in an NGO.
Let me state for the record, “If I could, I would pay the debt of immediately!” However, I have not been paid a salary since April 2008 and have survived by consultancy work. Perhaps with my next job I will be able to settle these debts once and for all.
I do not wish to regale you with the arsenal available to the lawyers, or on the lack of information forthcoming from their offices of how far your repayment is coming. Needless to say, I will welcome a law that helps a debtor in relationship to these educated and learned professionals.
On this matter, I wish to suggest a Consumer Ombudsman for citizens who have dealings with lawyers. On more than one occasion I have found an invoice for services from a law firm that has no basis in reality. It is impossible to fight with a lawyer about any of their charges, after all they are better armed with the letter of the law.
A new look at credit law
Present-day policies are aimed at improving the performance of credit markets, such as group-lending or creation of collateral, and typically aim to change incentives for borrowers.
In contrast, pre-modern credit market interventions, such as usury laws, often targeted the behaviour of lenders.
We need to look at the stipulation that accumulated interest cannot exceed the original principal, irrespective of how much time has elapsed. We interpret this rule, which is found in Hindu, Roman, and Chinese legal traditions, as giving lenders the incentive to find more capable borrowers, who will be able to repay early, thereby improving the allocation of capital.
Housing in Namibia
A friend of mine was recently very angry at the “foreigners, especially the Angolans who are inflating the purchase prices of our house”. Of course, he was in the market for the purchase of a house. During this same week, another friend was ecstatic that the “Angolans are pushing the prices through the roof”. He was selling his house!
Two different opinions depending on where you are standing.
However, there is something we can do. We need to improve the flow of information about the housing market by making it a legal requirement for immediate disclosure of property selling prices. This can be published in the local newspapers (like in the Observer use to do with mortgages), or to an online website. This will help to accelerate the process of market adjustments.
Consumer Rights
India has been observing 15 March since 1989 as the National Consumers’ Day. This day has a historic importance as it was on this day in 1962, when the Bill for Consumer Rights was moved in the US Congress. During his speech President John F. Kennedy had remarked:
“If a consumer is offered inferior products, if prices are exorbitant, if drugs are unsafe or worthless, if the consumer is unable to choose on an informed basis, then his dollar is wasted, his health and safety may be threatened, and national interest suffers.”
John F. Kennedy had equated the rights of the ordinary American consumer with national interest. He gave the American consumer four basic rights:
- The Right to Safety - to be protected against the marketing of goods which are hazardous to health or life.
- The Right to Choose - to be assured, wherever possible, access to a variety of products and services at competitive prices: and in those industries where competition is not workable and Government regulation is substituted, an assurance of satisfactory quality and service at fair prices.
- The Right to Information - to be protected against fraudulent, deceitful or grossly misleading information, advertising, labelling, or other practices, and to be given the facts s/he needs to make an informed choice.
- The Right to be Heard - to be assured that consumer interests will receive full and sympathetic consideration in the formulation of Government policy, and fair and expeditious treatment in its administrative tribunals.
Kennedy recognised that consumers are the largest economic group in the country’s economy, affecting and affected by almost every public and private economic decision. But they were also the only important group who were not effectively organised, whose views were not heard.
Namibia consumers need protection! A law on Consumer Rights should include:
- Basic Needs
- Safety
- Information
- Choice
- Representation
- Redress
- Consumer Education and
- Healthy Environment.
The biggest problem is the following statement often quoted by business “..consumer protection can only truly exist in first world, industrialised, or developed nations due to the fiscal resources necessary to properly execute legal protection of consumer interests.”
Any business today must put the interest of their customer first to ensure a continued relationship. However, the consumer in the developing world has less choice in products or suppliers AND THEREFORE needs more protection.
The cost of taking legal action can be prohibitive. Could you afford to claim compensation if you were injured in an accident, unfairly dismissed from work or had a dispute with a business?
Legal insurance
A friend of mine has had legal insurance for the past three years and believed he was covered. About a month ago, he was accused of being involved in a theft syndicate at his work. He immediately called his legal insurance company, but was informed they do not cover criminal cases.
He was taken for a polygraph test (is that legal in Namibia?), and informed that he had failed the test. This led to him leaving the job that morning to go speak to his legal insurer.
Yeah right. They do not cover the expenses for a labour case either.
WHAT is it with insurance companies that do not want to pay claims? If you complain at NAMFISA they do very little to help.
If I am going to buy legal insurance I expect:
Bail Assistance
• Bail negotiations and applications on members’ behalf
• Depositing of the bail amount/issuing of bail guarantee on behalf of arrested member
Civil Law
• Bank and insurance matters
• Blacklisting
• Building and construction matters
• Contractual disputes
• Debt collection
• Letters of demand
• Litigation
• Personal injury claims, etc
Criminal Law
• Fraud, theft, robbery or assault
• Arrests
• Bail applications
• Consumer issues
• Driving under the influence
• Reckless driving
• Search warrants, etc.
Family Law
• Ante-nuptial contracts
• Custody disputes
• Divorces
• Family violence matters
• Interdicts
• Maintenance disputes, etc.
Labour Law
• Dismissals
• Disciplinary proceedings
• Pension payout disputes
• Restraint of trade agreements
• Retrenchments
• Unpaid wages
• Working condition
Surely this is not too much to ask?
What can consumers do?
Whenever we hear about consumer rights, we must look closely, because there is sure to be a “consumer activist” in the area. What is this activist doing and what is their goal?
According to definition, consumer activism is undertaken on behalf of consumers to assert consumer rights. Goals can include making products or services that are directed at consumers safer, of better quality as well as making them more readily available. The ideal goal is to push consumers to question the morality of a purchased product's origins.
Consumer activist tactics can include boycotts, petitioning the government, media activism, and organising interest groups
The most common tactic is to have protest marches in order to gain political influence (make the politicians listen). By gaining this influence, the group gains new political opportunities as well as access to resources such as donor money, to use for their benefit. This in turns allows for funding of further activities to protest and get the message heard.
One of the most important decisions by a consumer protection group must be the identification of a visible, clear, and despicable target that will allow for unification and mobilisation of consumers.
In Namibia, there are many businesses (and their products) that make consumers angry. In an informal survey, they most common culprits are banks, insurance companies and government. As for products, the most often cited is the lack of control on freshness of products, be they fruit and vegetables, milk or bread.
The most vexing question must remain however, what power do consumers have. It is easy to advocate not “banking for a day”, or not buying from a certain retailer, but this would need concerted effort from all consumers, not just the activists.
Consumers need to stand up for their rights. Government has to enact legislation to protect consumers, AND punish businesses that do not comply.