A recent study by the Bank of Botswana (BoB) has found that by the end of December 2019, household debt in the country totaled P50.7 billion.
The bulk of the debt was made up of bank loans, which accounted for 88.6 percent.
The second was micro-lenders loans at 9.4 percent, followed by hire purchase credit at 1.3 percent and Savings and Credit Cooperatives Societies (SACCOS) loans at 0.6 percent.
As a percent of the GDP, by the end of December 2019, household debt was 25.8 percent.
According to the study, banks and micro-lenders viewed the outlook for demand for credit to be moderate, while hire purchase stores expected it to be generally low in 2020.
Compared to the previous survey conducted in 2018, the central bank has noted that men tend to borrow more than their female counterparts. The middle-aged group – 30 to 49-year-olds – was found to be borrowing more than other segments of the population.
It was further observed that households earning monthly incomes between P3, 001, and P20, 000 actively participate in credit markets compared to those who earn outside this bracket.
It has also been found that the majority of borrowers were government employees, who accounted for 54.8 percent of total borrowers followed by private-sector employees at 43.2 percent.
Unemployed individuals made up 1.3 percent and those that are self-employed accounted for 0.7 percent of total borrowers.
The survey results are said to be inconsistent with the findings of the Global Financial Stability Report of 2017, which states that lower-income groups typically participate less in the credit market and that their credit profiles are weaker.
The BoB says this suggests that lower-income households are most vulnerable to cyclical fluctuations in income and are less likely to benefit from positive wealth effects due to their relatively low net asset holdings.
From the banks’ perspective, it has been noted that low-income earners are generally perceived to represent a higher credit risk and therefore have credit constraints imposed on them.
While household debt currently stands at over P50 billion, it has been reported that during the same period, a total of 31, 133 loan applications valued at P5, 286 million were rejected, representing approximately 40 percent of total loan applications for that year.
The inability to satisfy some requirements by households is said to have led to the rejection of loan applications.
Some of the factors cited were: bad management of personal bank accounts, failure to meet minimum employment period and thresholds such as debt-to-income ratio, and failure to agree on the rate of interest by the bank and the customer.