Iipumbu Shiimi addresses household over-indebtedness in Namibia

Member of parliament Iipumbu Shiimi, National Assembly, Windhoek, 1 July 2025

Household indebtedness in Namibia has remained persistently high over the years, with the situation being particularly acute among public servants. This issue, if left unaddressed, may evolve into a broader social and economic crisis.

It is therefore imperative that the matter is comprehensively investigated to identify its root causes and to formulate effective and sustainable solutions. In this statement, I wish to highlight the key contributing factors to household over-indebtedness and provide an overview of the measures currently under consideration to mitigate the problem.

REGULATORY GAPS

Currently, there are microlending institutions operating outside the scope of the Microlending Act of 2018 and thus not regulated by the Namibia Financial Institutions Supervisory Authority (Namfisa). These institutions fall under the purview of the Usury Act, which permits them to charge interest rates of up to 1.6 times the prime lending rate.

Operating outside of Namfisa oversight, these lenders are often able to engage in predatory practices such as retaining clients’ identity documents and ATM cards, activities that go unnoticed due to the lack of regulation.

To address this regulatory vacuum, the drafting of the Consumer Credit Bill is currently at an advanced stage. Once enacted, this legislation will ensure that all microlending institutions, including informal money lenders, fall under the regulatory authority of Namfisa. This is a crucial step towards protecting consumers from exploitative practices.

The deduction code (payroll deduction management system – PDMS)

Introduced in 2003, the Payroll Deduction Management System was designed to facilitate easier access to credit for civil servants by allowing approved microlenders (so-called “term lenders”) to deduct loan repayments directly from salaries. This system significantly reduces the risk of default for lenders, as the employer (government) guarantees repayment at source.

However, despite safeguards, such as the Labour Act’s provision that stipulates that no more than one-third of a salary may be deducted, several loopholes have led to abuse and over-indebtedness:

• • Maintenance orders: These court-mandated payments are prioritised and processed regardless of the one-third salary limit.
  
• • Timing of housing loan approvals: During the processing window for housing loans, employees may take out additional credit, thereby violating affordability rules when the home loan is eventually approved.
  
• • Resignation and re-employment: Some employees resign to access their pension benefits, leaving unpaid loans behind. Upon rejoining public service, their loan obligations push them beyond legal deduction limits.
  
• • Allowance-based affordability assessments: Some affordability tests include allowances such as hardship allowances, which may later lapse, thereby distorting affordability and resulting in over-deduction and distress.
  

Over-lending due to guaranteed recovery

A further critical factor driving over-indebtedness is the practice of over-lending by credit providers, enabled by the guaranteed recovery of loan repayments at source via the deduction code. Because repayment is secured through direct payroll deduction, lenders face minimal risk of default and are therefore incentivised to extend more credit than would otherwise be prudent.

This undermines responsible lending practices and places the burden of financial distress squarely on the borrower. Many public servants find themselves with severely reduced take-home pay, impairing their quality of life and long-term financial stability. This situation calls for urgent policy intervention to ensure that lending remains both accessible and responsible.

POLICY OPTIONS

It is encouraging that the Ministry of Finance has studied the challenges associated with the deduction code and is now in a position to advise the National Assembly accordingly.

A few policy options may be considered:

• • Tighten PDMS rules: Revise the framework to close identified loopholes and enforce stricter compliance with all relevant legal frameworks.
  
• • Cap interest rates on deduction code loans: Permit access to the deduction code only for lenders charging reduced interest rates, reflective of the near-zero default risk. The current ceiling of twice the prime rate is excessive and should be re-evaluated.
  
• • Restrict the use of deduction code to productive loans: Allow deductions only for loans with social and economic value such as housing, education, or savings-linked products, rather than indiscriminate consumer credit.
  
• • Phase out the deduction code: Introduce a responsible, phased approach to discontinuing the PDMS system by setting a cut-off date for new loans while allowing existing loans to continue until repayment.
  

Rising household debt, especially within the public sector, presents a growing socio-economic threat. It does not only affect individuals’ financial wellbeing but also has implications for productivity, morale, and national economic stability.

Accordingly, I submit that the Consumer Credit Bill should be prioritised for enactment and access to the deduction code must be revisited with a view to protecting civil servants from exploitation. Further, I propose that a relevant parliamentary standing committee be tasked with a full investigation into the issue of over-indebtedness and report back to this House with findings and recommendations.

I thank you.

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