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Consumers’ over-indebtedness worries Central Bank

By Ntombi Mhlongo

The Central Bank of Eswatini (CBE) says it’s concerned by consumers’ over-indebtedness.

The CBE adds that this can have adverse repercussions on the attainment of its goal of ensuring financial stability and overall economic development in the country.

On its website, the bank shared insight through an article on how over-indebtedness comes about. It stated that while being indebted was inevitable, it becomes problematic when it leads to over-indebtedness.

In particular, the bank said there is an economic and socio-psychological impact on individuals that find themselves over-indebted. From an economic perspective, the bank said over-indebted consumers often face liquidity constraints because they are unable to borrow against future earnings, making it increasingly challenging to meet their financial needs.

On the socio-psychological front, individuals with unmet debt obligations are at a higher risk of depression than those without financial difficulties.

“Unsettled financial obligations have also been associated with poor health patterns, including physical illness. Over-indebtedness is, therefore, a concern to the Central Bank as it can have adverse repercussions on the attainment of its goal of financial stability and overall economic development in Eswatini, in addition to the adverse impact it has on the financial consumer’s well-being,” it stated.


It highlighted that according to the Eswatini Consumer Credit Act (CCA), 2016 (as amended), a consumer is over-indebted when the gravity of available information at the time a determination is made indicates that the consumer is, or will be, unable to satisfy on time, all the obligations under all the credit agreements to which the consumer is a party.

In terms of the signs to indicate over-indebtedness, the bank referred to the fact that in Eswatini, the prescribed debt-to-income ratio is 33 per cent and that if the debt obligations are consistently above this threshold against a person’s income, then this is a sign of a financial strain.

“Repeated late payment of standing loan obligations is another indicator that a consumer is experiencing a significant financial burden. This situation is further worsened in that consumers under default then incur penalty fees, and a host of other fees like attorney’s fees,” it said.

Regarding the causes of over-indebtedness and ways of avoiding it, the bank outlined that in most cases consumers do not follow the recommended “50-30-20” budgeting principle which advocates for the allocation of 50 per cent of income towards basic needs.

The basic needs include food, transport, mortgage, rent, 30 per cent towards non-basic, everyday expenses like leisure activities and 20 per cent towards savings. Reckless credit by Financial Services Providers (FSPs) including banks can also be a cause for consumer over-indebtedness, according to the CBE.


It referred to Section 26 of the CCA which it said requires FSPs to assess a consumer’s financial affordability to inform the decision whether to grant or refuse a loan or credit.

“Therefore, based on this assessment, the FSP should be able to determine if a consumer is overly committed by looking at the customer’s financial obligations”.

Reference was also made to Section 25(1) of the CCA which states that the consumer shall fully and truthfully answer any requests for information by the financial institution when applying for new loans. Therefore, consumers also have a role to play by providing all the relevant information including all their standing financial commitments not only from formal FSPs but also with informal money lenders like stokvels and loan sharks.

As advice, the bank urged consumers to stop the adverse practice of going to different FSPs to initiate new loans when one of their loans is cleared or their income increases.

For those already highlight indebted, the bank said the CCA under Section 86 gives a right to the consumer to apply to a debt counsellor so that an assessment can be made as to whether he/she is over-indebted.

“Should this assessment reveal that the consumer is over-indebted, negotiation can then be made between the consumer and the credit provider to come up with a debt rearrangement plan. If there is no agreement, the debt counsellor could make an application to a court of law, on behalf of the consumer, so that one or more of the consumer’s debts can be re-arranged or declared reckless credit”.

Suggestions on how you can get out of over-indebtedness.

Do not take on more debt.

Cut back on, or stop using credit cards, and loans to cover expenses as much as possible to avoid accumulating new debts.

Cut out unnecessary expenses.

Since you need to reduce your payment obligations, review your spending, and eliminate or reduce some non-essential expenses (even temporarily) until your finances are in order.

Make a payment plan.

Create a schedule based on your income and the due dates of your payment obligations so that you know what you are paying for each month and can then adjust your expenses or start a side hustle to top up your income, where possible. This adds more payments and clears your debts quicker.

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