- What is the Microlending Act?
The Microlending Act, 2018 (Act No. 7 of 2018) (“the Act”) is an Act of Parliament, which came into force on 15 October 2018. The main purpose of the Act is to regulate and supervise microlending business in Namibia, to establish an effective and consistent enforcement framework relating to microlending and to promote responsible borrowing and lending. Thus, it is the principal legislation governing microlending transactions and the affairs of microlending businesses in the country.
- Why is NAMFISA involved in the Act?
In terms of its own establishing statute, the Namibia Financial Institutions Supervisory Authority Act (No. 3 of 2001), NAMFISA is mandated to exercise supervision over the business of non-banking financial institutions (which includes microlenders) and the services of such institutions. In addition, NAMFISA is also mandated to advise the Minister of Finance on matters related to the aforementioned institutions and their services.
- What is the role of NAMFISA?
NAMFISA’s initial involvement with the Act, while it was in its drafting phase, was that of advisor to the Minister. Now that the Act is law, NAMFISA’s role is to ensure the implementation and enforcement of the provisions of the Act.
In addition, NAMFISA must regulate and supervise microlenders in accordance with the provisions of the Act.
NAMFISA must ensure that microlenders are duly registered in terms of the provisions of the Act.
NAMFISA must ensure that registered microlenders comply with their conditions of registration.
NAMFISA must oversee the business of microlending in Namibia and make sure that there is fairness, efficiency, transparency and orderliness in the microlending industry.
NAMFISA must set down the rules for conducting business as a microlender and ensure that the playing field is levelled and that all microlenders are adhering thereto.
- How will the Act benefit Consumers and the Country?
The Act is to a great extent focused on promoting and protecting the rights of borrowers. It does this by, among other, seeking to limit malpractices that have been prevalent within the microlending industry, and their effects on borrowers.
The Act thus prohibits practices that are detrimental to borrowers. These include the retention of the bank cards and PINs of borrowers, signing of blank or incomplete documents (inclusive of acknowledgments of debt, consents to judgment, waivers of borrowers’ legal rights and agreements to consent to the attachment of borrowers’ property without a court order).
Therefore, the Act imposes specific obligations on microlenders to ensure that they practice responsible lending. At the same time, it also seeks to promote responsible borrowing.
In addition, the Act seeks to foster financial inclusion, which is one of the key focus areas of the Namibia Financial Sector Strategy.
- Why the new Act?
Prior to the promulgation of the Microlending Act, microlending in Namibia was regulated in terms of the provisions of the Usury Act, 1968 (Act No. 73 of 1968) and the Exemption Notice issued thereunder. This legal framework was very precarious, and had fundamental shortcomings, which undermined the sustainability of the industry, negated enforcement endeavors and exposed borrowers to exploitation.
Section 15A of the Usury Act made provision for the Minister of Finance to exempt, by notice in the Gazette, certain categories of money lending transactions, credit transactions or leasing transactions from any or all of the provisions of the Usury Act. This exemption was subject to conditions and to such extent as the Minister deemed fit, and, it could be revoked or amended at any time. The Exemption Notice, which detailed the duties and obligations of microlenders, was issued in terms of section 15A.
However, the appropriateness of regulating the microlending industry on the bases of the Exemption Notice was debatable. In particular, the authority to enforce the provisions of the Exemption Notice appeared to be assailable. Thus, the Microlending Act was promulgated to address these shortcomings.
- What is the role of the consumer in this Act?
First and foremost, consumers must always take the necessary steps to ensure that they take informed decisions. In the context of microlending transactions, and especially with this new law being in force, this involves awareness of their rights.
Secondly, it is important for borrowers to understand that the Act not only seeks to promote responsible lending, but also responsible borrowing. This means that borrowers have a responsibility to borrow responsibly.
Hence, the Act has placed specific obligations on borrowers. This includes, among others, providing complete and accurate information to allow a microlenders to have a complete view of the borrower’s financial position. Ideally, this should allow microlenders to make an objective assessment of the consumer’s ability to service a new loan, having regard to all of his/her current expenditure and financial obligations.
- Anything else?
The objects of the Act are, inter alia, to foster the highest standards of business conduct by microlenders, the promotion of public awareness and understanding of the microlending industry and the reduction and deterrence of financial crime.
Borrowers and microlenders alike should be aware that reference to the Act includes the various subordinate measures that may be issued under the Act. These are regulations, standards and various other notices. Failure to comply with the Act, including the various subordinate measures thereunder, may lead to remedial action, which may range from civil sanctions to criminal sanctions.
Annual renewal of registration has been introduced by the Act. It therefore follows that the registration of a microlenders under the Act is valid for one year, from the date of registration. Microlenders thus need to renew their registration on an annual basis. If NAMFISA finds, during the process of annual renewal, that a microlender is not in full compliance with the provisions of the Act, the microlender’s registration might not be renewed. NAMFISA may also cancel the registration of a non-compliant microlender.
The cancellation of a micolender’s registration must be done in accordance with the provisions of the Act. This means that NAMFISA must first issue the microlender with a notice of intention to cancel, and give the microlender at least 30 days within which to respond to the notice of intention to cancel.
As part of the subordinate measures, the Minister may prescribe, by issuing a regulation, penalties for the contravention of the provisions of the Act. Thus, once a penalty is prescribed in respect of a particular provision, non-compliance with such provision may lead to the imposition of a penalty. Such penalties may be either a daily penalty for each day of non-compliance or a once-off penalty not exceeding N$100,000-00 depending on the specific circumstances, the nature and severity of the non-compliance.