MASERU – LESOTHO’s credit bureau now has records of more than 100 000 individuals which local commercial banks are already using to assess risk and decide on who to give loans.
The bureau managed by Compuscan, a South African firm, was established by the Central Bank of Lesotho (CBL) two years ago.
A credit bureau is a company or institution that collects and maintains individual credit information to sell or distribute to lenders, creditors and consumers.
Compuscan’s country manager ’Mannete Khotle told thepost that although they are not moving as fast as they would like there has been significant progress in capturing credit records.
Khotle said what contributed immensely in slowing down of the information gathering is that some creditors are still dealing with their clients manually, which makes it difficult to feed the records into a central system.
Gathering the information has also been slow because it’s contained in manual records.
“Some of the institutions that we should get information from especially in the micro finance industry do not have equipment. Most are still using the manual way of capturing data,” Khotle said.
She added that there are processes underway to help the micro finance industry move from manual and to digital records.
“This will enable them have accurate records and ensure that they do their work in the most effective way”.
Khotle further indicated that another challenge is with sensitizing the nation about the credit bureau.
“There is still a misconception as to what the bureau does. People still think that we influence credit institutions as to who should get credit and who shouldn’t”.
“In reality that is not the case, all we do is to gather information from credit institutions, afterwards the credit institutions look at the information we have gathered and make decisions based on the client’s credit history.”
She added that the Private Sector Competitiveness and Economic Diversification and the CBL are helping the bureau with a national campaign to educate people about the bureau.
“The Credit Act only talks about credit and does not extend to policies like life cover hence our focus is solely on credit,” Khotle said.
She said consumers should not a view the credit bureau as something hostile because it is there to help them.
“What is wrong is over indulging yourself, but if you have a good relationship with your money you will know your boundaries, you will not be tempted to use your money for things that you do not need”.
“You will be able to pay off your debts on the time agreed upon and will not be over-indebted.”
She added that it is hard for people who have no credit history to get loans from banks.
“They do not have any idea of your performance so it becomes difficult for them to give credit to such individuals, while with those who have credit history it is easier to grant them credit because their credit history is known,” Khotle said.
The chairperson of the Association of Microfinance Institutions, ’Mamakamane Makamane, said it is important for them to digitalize their systems so they comply with the CBL’s regulations.
“As the association right now we are trying to consolidate the industry and ensure that we abide by law and even stop possessing people’s properties because that is illegal,” Makamane said.
She added that they have already established a special fund to put in place systems that will help them comply with regulations and computerise their systems.
She said they are currently working on offering training especially to the small institutions that are based in the rural areas.
“Some of them do not even know how to use a computer so we are working on training them so that when the systems are in place and they have computers they can be able to do their job without any obstacles,” Makamanes said.
“These people play a huge part in ensuring that people in rural areas have access to finance and should therefore be assisted to do their work smoothly as they operate even in areas where banks are not available,” she said.
Why credit bureaus matter?
Transparent credit information is a prerequisite for sound risk management and financial stability. Credit reporting institutions, such as credit bureaus, support financial stability and credit market efficiency and stability in two important ways.
- Banks and nonbank financial institutions draw on credit reporting systems to screen borrowers and monitor the risk profile of existing loan portfolios.
- Regulators rely on credit information to understand the interconnected credit risks faced by systemically important borrowers and financial institutions and to conduct essential oversight functions. Such efforts reduce default risk and improve the efficiency of financial intermediation. In a competitive credit market, these efforts ultimately benefit consumers through lower interest rates.
- Effective credit reporting systems can mitigate a number of market failures that are common in financial markets around the world, and most severely apparent in less developed economies. The availability of high-quality credit information, for example, reduces problems of adverse selection and asymmetric information between borrowers and lenders. This reduces default risk and improves the allocation of new credit. Information sharing can also promote a responsible “credit culture” by discouraging excessive debt and rewarding responsible borrowing and repayment.
- Credit reporting allows borrowers to build a credit history and to use this “reputational collateral” to access formal credit outside established lending relationships. This is especially beneficial for small enterprises and new borrowers with limited access to physical collateral. Evidence from the recent financial crisis also suggests that positive credit information helped to safeguard the financial access of creditworthy borrowers that would have otherwise been cut off from institutional credit. – World Bank
5 things to know about credit bureaus
Types of Information the Credit Bureaus Collect
Credit bureaus maintain a number of details related to you and credit history, starting from the time you open your first credit account. For instance, the credit bureau collects information about your repayment history, the amount of credit you have available, the amount of credit you are using and outstanding debt collections.
Credit bureaus also maintain non-credit information about you including your address, current and previous employers, and salary information. While this information is not used to calculate your credit score, businesses may consider it when they’re evaluating whether to do business with you.
Where Do Credit Bureaus Get Information?
Credit bureaus depend on banks and other businesses to provide them with consumer information. Many of the companies you do business with send regular updates on your open accounts. Credit bureaus also get information about you from public court records.
Who Uses Credit Bureau Data?
Banks and credit card issuers are the most obvious users of the information provided by credit bureaus. A host of other companies turn to credit bureaus to make decisions about you. Employers, insurance companies, landlords, and debt collectors all request information from the credit bureaus.
Credit Bureaus Only Provide Information
While credit bureaus provide some or all the credit information that creditors and lenders use to deny or approve your applications, the bureau itself does not make a credit decision. — Credit.about.com
How your credit worthiness is measured
The most important factors considered in credit evaluation are those that relate to an individual’s history of repaying loans and any evidence of noncredit-related collections or money-related public actions. Credit evaluators consider whether an individual has a history of repaying balances on credit accounts in a timely fashion. The analysis takes into account not only the frequency of any repayment problems but also their severity (lateness), date of occurrence (newness), and dollar magnitude. Evaluators assess repayment performance on the full range of accounts that an individual holds, distinguishing accounts by type (such as revolving, installment, or mortgage) and by source (such as banking institution, ﬁnance company, or retailer). In general, an individual with serious deﬁciencies in repayment performance, such as a credit account that is currently delinquent, will ﬁnd qualifying for new credit difﬁcult, may face higher interest rates for the credit received, or may be limited in further borrowing on existing revolving accounts.
When evaluating credit, creditors consider the type and amount of debt an individual has and the rate of credit utilization. For revolving accounts, the rate of credit utilization is measured as the proportion of available credit in use (outstanding balance divided by the maximum amount the individual is authorized to borrow, referred to as the credit limit). For installment and mortgage accounts, credit utilization is generally measured as the proportion of the original loan amount that is unpaid. High rates of credit utilization are generally viewed as an additional risk factor in credit evaluations, as they may indicate that an individual has tapped all available credit to deal with a ﬁnancial setback, such as a loss of income.
Length of Credit History
Credit evaluators consider the length of a person’s credit history because it provides information about how long the individual has been involved in credit markets and about whether he or she has obtained credit recently. The age of the account is relevant to an evaluation of credit quality because the longer the account has been open, the more information it conveys about an individual’s willingness and ability to make payments as scheduled. New accounts may convey little information other than that a consumer has had a recent need for additional credit and has been approved for credit.
Acquisition of New Credit
Whether a person is seeking new credit provides information about the credit risk posed by the individual. The number of new accounts the individual has recently established and the number of attempts to obtain additional loans, as conveyed by records of recent creditor inquiries (requests for credit reports), all provide a picture of the individual’s recent credit proﬁle. Attempts to open a relatively large number of new accounts may signal that a person risks becoming overextended.
Calculating a Credit History Score
Statistical modelers working with data from credit reporting agencies construct credit history scores using selected factors of the types described above. Modelers divide each factor into ranges and assign each range a point count. The score for an individual is the sum of these points over all factors considered in the model. Typically, the points and the factors used in the model are derived from a statistical analysis of the relationship between the factors at an initial date and the credit performance over a subsequent period.— Federal Reserve Bank
Why invest for the future
AN investment plan forms a critical pillar of a financial plan, says Tokiso Nthebe, a local author and financial services adviser.
Nthebe, the founder of TKO Financial Wellness and Advisory, says when people invest, they can use their money to buy assets that will increase in value over the long term.
He says these assets can help them build wealth.
“When you invest, your money starts to work for you by providing returns that will beat inflation,’’ Nthebe says.
Nthebe says there is a huge difference between saving and investing.
He says investing requires that you take some level of risk in exchange for an expected return or growth.
Nthebe says Basotho should consider many factors before they decide to start investing.
“It is important to have a clear strategy that guides your investment decisions and to work with qualified professionals,” he says.
Nthebe says one should consider their growth mind-set, investment goals, and their risk tolerance.
In addition, one should consider what kind of growth or return they expect.
He says one should find out whether the institution they invest in is licensed or regulated and how long one should invest.
Nthebe says one should further consider what risks are associated with the investment option and whether there are any associated costs.
He says it is also important to remember that investments take time.
“There are no short cuts to building wealth. Do not fall prey to get-rich-quick schemes,” he says.
Moreover, Nthebe says the investment landscape comprises commercial banks, asset management companies, and insurance companies.
He says each provides different financial products and services.
Nthebe says the Central Bank of Lesotho (CBL) also offers investment solutions such as treasury bills and treasury bonds that Basotho can consider.
Depending on your investment goals, he says financial service providers have a wide range of investment solutions to choose from that cater for short, medium, and long-term goals.
“I encourage Basotho to do thorough research and seek professional advice before making financial decisions,” he says.
Vince Shorb, the United States National Financial Educators Council CEO, writes that “many of the financial problems people face today started when they were young and making their first financial decisions”.
Shorb further says taking on too much debt, not investing early, and failing to plan can take one decades to recover from such.
However, it takes financial literacy to make good decisions, he says.
Financial literacy has been perceived as a tool that gives you the opportunity to be confident and empowered to live the quality of life you have worked hard for.
Shorb says one of the wisest decisions one can make to prepare for the future is to invest.
Investment has been defined as the commitment of funds with a view to minimising risk and safeguarding capital while earning a return.
When Covid-19 hit and the government shut down all gatherings in April 2020, there seemed no way out for ICONICS (Pty) Ltd, a budding events management company based in Leribe district.
They had two options: shut down or innovate to keep the business going.
They chose the latter.
Three years down the line, ICONICS (Pty) Ltd has completely transformed itself from an events management and public relations company into a manufacturing company that is now the envy of Lesotho.
“The closing of events translated into the closing of our business,” Rapitso Mosebetsi, one of the co-founders of ICONICS (Pty) Ltd told thepost this week.
Mosebetsi established ICONICS in partnership with Tumo Mahapa.
Faced with collapse, Mosebetsi say they began buying Personal Protection Equipment (PPE) such as surgical gowns, disposal coveralls and safety apparel for resale.
Eventually they decided to manufacture the PPEs and safety clothing. That was the turning point.
But since the company was already down, Mosebetsi says diversification was a hard nut to crack.
“It became quite a long journey (for us),” he says. “We had to come up with something new for the industry.”
He says they had to overcome stiff competition from giant companies and come up with something unique that would set them apart.
“That was how thermal heating apparel was born,” he says.
“We are the first company to produce thermal heating apparel,” he says.
The company manufactures thermal clothing, which is electric clothing, using power banks of five voltages.
“The voltage is so low to electrocute a person,” he says.
The clothing also has a power button to turn it on and off.
Mosebetsi says the thermal heating apparel is on corporate clothing as well as high-visibility clothing.
Mosebetsi says they started the journey with the support of several organisations, such as the Lesotho National Development Corporation (LNDC) and the Basotho Enterprises Development Corporation (BEDCO), to build their capacity.
Mosebetsi says they also got mentorship support from organisations such as the Global Entrepreneurship Network.
The results of years of hard work are now all out for everyone to see.
In 2022, ICONICS won the M100 000 Business Plan Competition hosted by BEDCO.
This grant enabled them to acquire land and buy five more industrial machines.
This did not only enable the company to increase their production to 100 worksuits a week, but it further created permanent jobs for five people as well as three temporary workers.
Last year, the company took part in the Exporter of the Year event hosted by the LNDC in partnership with the Lesotho Post Bank and the United States Agency for International Development (USAID).
Mosebetsi says they won the award for Lesotho’s most innovative and versatile exporter.
He says this did not only put them in the spotlight, but it further encouraged them to do more.
ICONICS was announced as the best exporter of the year at an event hosted by the LNDC earlier this month.
Mosebetsi says this made them proud, as the award is aligned with their vision.
The award further gives the company an opportunity to participate in the regional competition.
He says this opportunity will further give the company a competitive edge in terms of production locally and globally.
“It will be an honour if we can win the regional competition,” he says.
In terms of markets, Mosebetsi says the company has had the opportunity to list their products in the African Trade Market since 2020 with the support of USAID.
This is an e-commerce platform that opens up the market for African countries to list their products.
Mosebetsi says the company did not only get publicity, but the client database also increased.
He says they moved from supplying individuals only to big companies, different organisations, and different government departments such as those involved in mining and health.
Considering the decline of the Lesotho textile industry, Mosebetsi says their secret to success has been their being innovative.
“Our sustainability is matched with innovation,” he says.
Mosebetsi says it also requires patience coupled with lots of investment in terms of time.
“Rome was not built in one day,” he says.
He says working as a team also plays a critical role.
Despite their achievements, Mosebetsi says the market for innovative industries is one of the hardest nuts to crack.
He says the company is in the process of not only making their products known but also educating people about their safety.
Mosebetsi says the other challenge is the decline of the South African Rand as compared to the US Dollar.
He says some of their materials are sourced from China.
Therefore, it is more expensive to buy such materials.
ICONICS is not only seeking to make their brand well known globally, but Mosebetsi says they are also seeking to create more jobs for our youths.
LetsGo and Win!
LETSHEGO Financial Service has launched the LetsGo and Win loan consolidation campaign where customers win weekly and monthly cash prizes of up to M150 000.
The campaign, which was launched yesterday, will end on November 8.
The LetsGo and Win campaign rewards customers for consolidating their loans.
It is aligned with Letshego Lesotho’s version to offer competitive products that cater for the evolving needs of its customers.
The financial services company operates in Lesotho, Botswana, ESwatini, and Zambia.
The Marketing Manager and Business Partner, Tšotetsi Seema, said Letshego Lesotho is committed to delivering increasing value and options to customers.
Seema said this programme is a testament to that commitment.
“The campaign invites customers to consolidate their loans into one low and easy repayment with reduced rates and they stand to win weekly and monthly prizes,” Seema said.
“The weekly cash prizes will be won by lucky customers randomly selected and notified through Letshego Radio shows,” he said.
Additionally, he said two lucky customers will be randomly selected each month and given a chance to spin the wheel of fortune with a chance to receive a maximum of M20 000 each.
“The loans consolidation campaign makes it easier for customers to choose Letshego Lesotho as their preferred financial services partner.”
He said this innovative campaign aims to help individuals streamline their debt payment while benefiting from reduced interest rates.
“Debt consolidation can help customers get a lower monthly payment, pay off their debt sooner, increase their credit score and simplify their life.”
Letshego Lesotho’s Head of Sales, Distribution and Marketing, Motebang Moeketsi, said managing multiple loans can often be overwhelming with varying interest loans due dates and terms.
“The campaign addresses this challenge by combining multiple loans into a single, easy to manage repayment plan,” Moeketsi said.
He added that this simplification not only eases the financial burden on borrowers but also potentially leads to significant savings over time.
Moreover the new consolidation campaign invites customers to take advantage of their best-in-class financial services provided through Letshego Lesotho branch network and digital platforms.
“Letshego Lesotho is committed to increasing financial inclusion through its efforts to serve underbanked communities, promoting financial literacy and delivering positive social impacts for its customers and communities.”
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