THE expanding banking sector and the opening of other institutions providing financial services around the country have failed to drive out informal moneylending out of our marketplace.
Fast and easy access to money and the fear of “losing face” by borrowing in public are some of the contributing factors keeping the sector afloat. This is especially the situation in urban and sub-urban areas.
The Consuner Council of Fiji recognises that moneylending has become a major source of credit for low-income workers in Fiji and the business has boomed over the years.
The current number of licensed moneylenders is 1126, which is a 275.33 per cent increase since a research conducted by the council in 2007. Around 2007, there were about 300 moneylenders in operation.
Moneylending has boomed with more and more consumers accessing short-term and quick credit from the moneylenders to meet their social responsibilities. In some cases, people borrow to clear their utility bills, pay for their children’s school, hire-purchase or funeral services. It is an easy and quick source of accessing loan for a short period.
The demand for moneylenders is growing with more people struggling with the increasing cost of living. The fact that such a group exists testifies to the economic relevance of an industry whose actual worth, because of a lack of recording, is hard to quantify. However, the 2007 report estimated conservatively that the moneylending business was worth about $2million per year.
The reality is that for many, getting a loan from banks or other financial institutions is simply impossible. Thus, they look for stress-free means of getting a loan and such rescuers happen to be the moneylenders. We have many consumers who do not prefer going through huge paper work when securing a quick loan.
The lenders operate from everywhere — the markets, the little sub-urban shops, bus stands, their homes and workplaces. With the cyber revolution, moneylenders are contacted via Facebook and emails, negotiating and executing transactions. It’s all so convenient nowadays.
Why not banks?
Even, now with a number of banks opening their doors for lending small amounts in the form of unsecured loans, consumers still access informal sources of credit.
A snap survey run by the council found that banks such as Westpac, BRED Bank and HFC Bank are offering personal unsecured loan with minimum borrowing as low as $500 while ANZ, Bank of Baroda and BSP offer loan amounts depending on the borrower’s eligibility.
This is similar to the kind of service provided by the moneylenders in Fiji when it comes to borrowing a “small” amount.
But, the point to consider is the “interest rate” being charged by these banks in comparison with the 12 per cent fixed interest charged by the moneylenders per annum under the Moneylenders Act (Cap 234). While the interest rates charged by moneylenders are regulated by the legislation, the interests charged by the financial institutions are not. This basically means that these financial institutions can apply any interest rate irrespective of the loan amounts taken by consumers.
Here’s an example of high interest rates offered by some banks compared with the 12 per cent charged by the moneylenders:
* ANZ — 17 per cent (personal loan, unsecured), 21.90 per cent (fast cash loan, unsecured);
* Bank of Baroda — 14.75 per cent;
* BRED — 16 per cent;
* BSP — 18 per cent;
* HFC — 15 per cent; and
* Westpac – 13.75 per cent.
Looking at these figures, except for Westpac none of the banks are offering interest rate anything closer to 12 per cent. Hence, why would borrowers, who are in dire need of cash, opt for commercial banks? This makes moneylenders ideal for small and urgent money.
Apart from a high interest rate, bank loans come with certain fees/charges. Due to these undisclosed fees/charges and penalty fees many consumers find it easy to deal with a moneylender next-door.
Then, it’s also about the past credit history to assess one’s loan eligibility. Banks are obsessive about it. If the rating is too low, they will reject the loan application immediately.
Moneylenders are less fussy about a consumer’s credit score. If someone has a bad credit and cannot get a personal loan, the moneylenders can make it possible.
Banks may need to reflect on why consumers opt for money- lenders to obtain money. They must relook at their system and be more accommodative and transparent with fees and charges if they genuinely intend to help the needy.
Council’s position
The council has been assisting consumers who were charged more than 12 per cent interest by some moneylenders.
Unfortunately, there are moneylenders who charge exorbitant interest rate illegally.
The council is recommending that the Moneylenders Act Cap 234 be merged with the Consumer Credit Act 1999 because both the Acts deal basically with consumer credit.
* This is a regular contribution from the Consumer Council of Fiji. Email: mediaofficer@consumersfiji.org for feedback.
