Zim consumers struggling to repay consumer debt

Published: 05 December 2013

The low disposable incomes that more than three quarters of the population in Zimbabwe receive has seen most consumers acquiring consumer credits from the retail sector but as a result of their depressed incomes they have been struggling to repay the credits.

This problem is not only in Zimbabwe but reports show that our neighbour South Africa faces a similar problem as well.

According to Business Daily, almost half of South Africa's credit-active consumers are struggling to meet their debt repayments, National Credit Regulator (NCR) figures showed, reflecting the negative effect of high debt levels and a rising cost of living.

Unlike South Africa, Zimbabwe, due to the liquidity constraints within the economy, faces a worser situation. Credit today is used to buy almost anything. Most Zimbabwean retail businesses have developed a "take now pay later" approach even for food products which is a good strategy to attract customers. An advantage of this approach is that business gains a larger pull of customers, those that can pay cash and those that cannot. The disadvantage comes when the credit customers fail to pay their debts. The problem of bad debts is not only in the formal sector this problem is also in the informal business.

So should businesses stop offering credit?

The problem is not in offering credit but in assessing the credit worthiness of a consumer. With the above view and the current surge in bank non performing loans, business need to conduct a scrupulous analysis of the customer they intend to award the loan to.

According to Wikipedia, in the first world significant resources and sophisticated programs are used to analyze and manage risk. Some companies run a credit risk department whose job is to assess the financial health of their customers, and extend credit (or not) accordingly.

They may use in house programs to advice on avoiding, reducing and transferring risk.

They also use third party-provided intelligence. Companies like Standard & Poor's, Moody's, Fitch Ratings, Dun and Bradstreet, and Rapid Ratings provide such information for a fee.

In as much as it may be acknowledged that a business needs to expand its market to gain more revenue for it to be profitable and offering goods on credit bases is one of the ways to enhance the revenue, it should be of primary importance that a business conducts a diligent consumer credit worthiness analysis so as to save the business from running a host of bad debts.
- bh24