By Hilma Niilonga Amukwiyu
The Ministry of Finance announced the discontinuation of all discretionary payroll deductions for government employees with Payroll Deductions Management System (PDMS) scheduled to shut down on the 30 November 2025. The Ministry cited that some microlenders were relying to heavily on payroll safeguards rather than conducting affordability checks as required by the Microlending Act 7 of 2018.
The legislation amendments affects industry players like Insurance companies, Trade Unions, Agribank, commercial banks, and has caused panic especially to Microlenders like Letshego who have been for the past weeks managing reputational risk and assuring investors’ confidence. Its as though Letshego, who celebrated over N$ 400 million profits for 2024 financial year has been suddenly hit by its own financial crisis that is extraordinary and only unique to them both in breath and severity.
Entrepo Finance, the microlending arm of Capricorn Group came out guns blazing with an urgent court case filed in the Windhoek High Court on the 30 September 2025. They are suing the Minister of Finance and other related parties in an attempt to stop the plan to discontinue the payroll deduction management system.
The new legislation also affects clients who will pay a few more basis points in interest rates and bank charges due to debit orders. Some government employees will be pushed to borrow from Cashloans and Payday lenders that charge 30% in comparison to 17% of microlenders. The struggle continues.
In all these panics lies the question of Responsible Lending, Credit Risk Management, the quality of Loanbooks and Sustainability of our Financial institutions.
While one understands that some people’s salaries are genuinely not sufficient to meet their basic needs hence borrowing, one can not rule out that micro lenders have been engaging in reckless lending and therefore extracting profits merely from financial illiteracy and ignorance of Namibians. They have no appropriate strategy. Their only strategy is the deduction code.
Credit Risk Management can make or break any lending institution. The success of any lending institution lies in the combination two things: The quality of loans underwriting and an effective collection strategy. It’s a combination of both. Choosing one over the other have detrimental effect on both the lender and the borrower.
John Stumpf reminded us that “In the financial services, if you want to be the best in the industry, you first have to be the best in risk management and credit quality. It’s the foundation of every other success. There is almost no room for error.”
Credit Risk refers to the potential loss arising from the borrower’s inability to repay the loan .
Credit risk analysis & underwriting is assessing the probability that the borrower will default on a payment before the lender grant the loan.
The 2008 global financial crisis was a result of, among others:
- Inadequate Risk Assessments: Financial institutions extended large amount of loans to borrowers who couldn’t afford those loans leading to serious defaults
- Flawed regulation that allowed financial institutions to engage in risky practices.
While we acknowledge that commercial banks are stringent and a single missed/late payment will brand you a high-risk client, we also have to acknowledge that majority of the microlenders clients don’t have an informed view about money the way they should. For majority of the microlenders borrowers, they have dreams and wishes and therefore want funding. Its for this reason that financial institutions are given a duty to lend responsibly & not overstate a borrower capacity to repay a loan. Financial institutions also have a duty to protect clients against themselves as required by law.
In conclusion, in order to build a sustainable credit system that will achieve better outcomes for both the lenders and borrowers, financial institutions have to strike a balance between business growth, the quality of loan books while considering the human element simultaneously. Risk-based regulation and financial literacy trainings are also vital.
Hilma Amukwiyu is a Credit Risk Management Professional. She writes in her personal capacity and can be reached on: shatiamukwiyu@gmail.com