Home | Letters | IN DEFENCE OF THE SHYLOCK

IN DEFENCE OF THE SHYLOCK

30/03/2014 07:42:00 The editor

Font size:

Sir,

Thank you for giving me space in your newspaper to air my views on the insistence by law, that micro lenders must charge not more than 15 per cent interest per annum.

I must admit that I have not read this law but if it is what I have read in the newspapers, I find it very business unfriendly. It highly defeats His Majesty’s dream of being referred to as a First World country in eight years time.
I say this because in highly developed economies, the market forces of supply and demand are left to play on their own with little or no intervention from government.
It is an obvious fact that the communist ideology of the Soviet Union caused its collapse in the late 1980s and after its collapse, Russia realised that it would lose its First World status, hence it adopted a more liberal approach in sustaining and developing its economy.

Now, the question is why is Swaziland venturing into a territory where a big country such as the Soviet Union failed?
Why does the Swazi Government protect its citizens as if they are babies?
Such an attitude must change in order for Swaziland to attain First World status. Micro lenders are businesspeople who have been in this world since William Shakespeare’s time and one cannot wish them away.
These people play a big role at the grassroots level of the economy and so they must be left alone to determine the price(s) of their monies.
Shylocks, as they are normally called, do not steal the money they lend out nor force people to borrow money from them.

I stand to be corrected if there are ‘shylocks’ who do that but I doubt if there are any. These people forego their own luxuries and lend money to very high-risk borrowers who normally offer no collateral.
Some have fixed overheads such as rent, salaries, water and electricity to pay every month.
All these costs must be recovered from their customers.
When the market was not under regulation, a charge of 30 per cent per month covered all these costs, including risk.

Under regulation, the market is forced to charge 15 per cent per annum, which is equivalent to 1.25 per cent a month; a fall of about 95 per cent in price.
This fall in price is huge and spells doom for the micro lending industry, particularly for the very small ones.
One may not argue that they may make profit by increasing the number of their customers because the fact that they are called micro lenders, means their capital base is also micro, hence they have no capacity to lend big monies like banks.

As things stand, it means those micro lenders who run offices have to stunt down. This means a fall in economic activity because receivers of rent, salaries, water and electricity revenue will cease to receive such.
The big question is: can we survive without micro lenders?
To me, they appear to be a necessity in any society whether it has a culture of saving or not because life can throw unexpected tantrums at anyone, no matter how well organised that person is.

Actually, I have come to realise that micro lenders deal with emergency situations, in which case, they come in handy because one does not have to fill a host of papers and wait for head office approval, which may never come.
For example, a relative of mine once suffered a heart attack and had to be admitted to one of the private clinics in the country.
A deposit of E7 000 was demanded upfront.

It was a Sunday evening in the middle of the month and I did not have that kind of money.
I tried pleading with the hospital officer but the fire in her eyes signalled to me that I was wasting my time.
At that moment, I received a call from a friend of mine who told me about a ‘shylock’ who could help me with the said amount but he would charge me 30 per cent if I returned the money at the close of the month.
I quickly calculated that the cost of this money and realised that I had to pay E2 100 extra.

Now, a question which came to my mind was would I leave my relative to die just because I thought the cost of E2 100 was too high?
The answer was that the life of my relative was not that cheap. I rang the ‘shylock’ and got the money.
My relative was admitted and fortunately, her life was saved.

I repaid the shylock easily because on the ensuing week, I put in an application for a personal loan with my bank and got money which helped me to also do other useful things in my household.
In conclusion, I would like to say the limit imposed on the micro lenders is a gross violation of the principles of a free market economy.
I would also like to emphasise that micro lenders never force people to come and borrow their money.
For once, let us treat Swazis as adults who take responsibility for their actions. Also, it is important to note that micro lenders reach where big financial institutions fail to reach due to their flexibility and elimination of red tape when doing business.

Briefly, when fixing the interest rate the following factors had to be considered:
l Risk of bad debts
l Overheads such as rent, salaries etc.
l Working during odd hours.
l The low capital base with which they normally operate.
When looking at the 15 per cent annum that was made law, I am convinced that these factors were not considered, hence this law appears to be a sad mistake.

Cyril Matsebula
KWALUSENI