UNDERSTANDING CONSUMER CREDIT

Kapurua Kahorongo

Governance, Risk and Regulatory Specialist

Consumer debt acquired by an individual from a financial institution for the purpose of buying goods and services for own consumption

Consumer debt excludes debt obtained to finance commercial or business activities

Consumer credit allows consumers to purchase consumables instantly, even if they do not have cash

Consumer credit has various advantages for users such as:

• financial freedom and flexibility,

• credit card reward programs

• as well as allowing consumers to build a good credit history that is used for future credibility assessment.

However, consumer credit cards can lead to misuse and overspending which increases credit card debts, compulsive buying habits and high financial cost because of applied fees or interest rates.

Based on Namibia’s Consumer Credit Policy, Namibia is characterized by lack of a robust legislation that is effective in protecting consumers of credit against unfair market conduct. The policy further states that credit extended under the scope of market conduct supervision, although not broad-based in consumer protection principles, is that extended by the banks and microlenders. On the contrary, credit extended by retailers, for example, is not supervised against unfair market conduct, although such loans are also financial products. As a result, there is a fragmentation in the regulation and oversight of credit, with limited impact on indebtedness of households and desired market conduct in general.

The Policy states that lending and borrowing practices in the market must be in accordance with international best practise.

The following international principles are recommended through the policy and the bill alike:

• Fair and respectful treatment of clients

• Appropriate product design and suitability

• Responsible lending by institutions

• Transparency and full disclosure Data protection and privacy

• Mechanisms for complaint resolution