EZULWINI – Households are increasingly borrowing money for day-to-day needs rather than long-term investments.
This is a trend the Central Bank of Eswatini (CBE) says offers relief in the short run, but comes with risks for families.
The CBE has revealed that more emaSwati are now taking short-term, consumption-linked loans, with unsecured borrowing rising sharply as a share of all bank lending. Total household credit in the banking sector grew by 3.8 per cent, driven mainly by a 15.5 per cent rise in motor-vehicle loans and a 6.9 per cent increase in unsecured credit.
According to the bank’s latest financial stability review, household credit patterns have changed significantly in the past year. The report shows that unsecured loans grew by 6.9 per cent, while motor vehicle loans jumped by 15.5 per cent, helping drive total household credit up by 3.8 per cent.
The Central Bank says most households are now focusing on shorter-term borrowing, mainly for:
- School fees and education-related costs
- Groceries and general household consumption
- Medical expenses
- Personal emergencies
- Car purchases or car-related expenses
- Debt consolidation (using one loan to pay off others)
Because many of these loans are unsecured, they do not require collateral like a house or car. This makes them easier to obtain — but also more expensive and riskier. The bank notes that this structural shift ‘provides liquidity support and stimulates consumption’ — meaning the loans help households cover costs and keep the economy moving. However, it also warns that this type of borrowing makes families more vulnerable if jobs are lost or incomes become unstable.
One of the biggest concerns is that the shift towards short-term loans means loan instalments are higher, even if the repayment period is shorter. This increases pressure on monthly budgets.
The report further warns that ‘unsecured borrowing increasing as a share of total bank credit’ means households can quickly run into repayment stress if anything interrupts their income — such as layoffs, reduced working hours, or unexpected expenses
However, the bank said overall affordability improved slightly in the past year.
The debt-service-to-income ratio — how much of people’s income goes to loan instalments — fell from 34.7 to 34 per cent, mainly due to lower interest rates and more stable incomes.
Household indebtedness dropped from 76.8 per cent of income to 74.1 per cent.
Credit-to-GDP for households fell from 15 to 14.5 per cent.
This means households are not borrowing recklessly and many remain cautious — possibly because of the tough economic climate in recent years.
Still, the bank warns that while households may not be over-indebted, their borrowing has become riskier, especially because unsecured loans have grown faster than other types of credit.
Unsecured loans often carry higher interest rates and missing one or two instalments can quickly damage a consumer’s credit record.
The bank warns that persistent and faster expansion of unsecured lending signals rising vulnerability, particularly for highly leveraged households.
It adds that if economic conditions worsen or jobs are lost, households may struggle to service their debts, creating ripple effects in the banking sector.
The Central Bank emphasises that the trend toward short-term, consumption-linked credit means the health of households now depends more than ever on steady employment. The report stresses that ‘sustained employment stability, civil service salary adjustments and financial literacy initiatives’ are crucial to helping families stay afloat and avoid repayment stress.
Economists say several factors explain why households are shifting away from long loans and towards short, unsecured ones:
- Cost of living pressures — rising food, school, transport and medical costs push families to take quick-access loans.
- Easier to access — unsecured loans require no collateral and are processed faster.
- Income volatility — many households feel uncertain about long-term commitments.
- Changing financial behaviour — more people prefer to avoid long-term debt after recent economic shocks.
- Banks are tightening standards — banks are stricter on long-term loans, encouraging shorter borrowing.
Looking ahead, the CBE stated that household sector vulnerabilities remain concentrated in rising unsecured lending and sensitivity to income or employment shocks.
A sustained widening of the credit-to-GDP gap implies on going risk aversion by households or borrowers and ultimately a limited contribution to households to overall credit expansion.
While current lending remains cautious and asset quality stable, ongoing monitoring of leverage, affordability and debt-service capacity is critical to assessing potential systemic spillovers.
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