Household Indebtedness Survey Report - 2021

HOUSEHOLD INDEBTEDNESS

survey REPORT

DECEMBER 2021

BANK OF BOTSWANA

EXECUTIVE SUMMARY

This survey1 measured the level of household indebtedness in Botswana, using data collected from commercial banks, statutory banks, micro-lenders, hire purchase stores, and Savings and Credit Cooperative Societies (SACCOS). The data was collected by means of an online questionnaire, which supplemented the regular statutory returns of commercial and statutory banks for the month of December 2020.

The findings of this annual survey help determine the extent of vulnerability of the financial system to household sector credit exposure and guide the determination and implementation of financial sector policies, in general, for effective functioning of the financial system and beneficial use of credit. Furthermore, the survey results serve as a public awareness material that makes it easier for the public to comprehend credit markets and guide households towards more effective financial management.

As at the end of December 2020, total household debt amounted to P54.8 billion, comprising bank loans (88.9 percent)2, micro-lenders loans (9.1 percent), hire purchase credit (1 percent) and SACCOS loans (1 percent). As a percent of Gross Domestic Product (GDP), total household debt was 31.7 percent in the same period, this compares to 28.4 percent in 2019. As with the previous surveys, the current survey indicated that men incur more debt than women and that the population group aged 30 to 49 years old have proportionately more debt than other age segments of the population. Furthermore, households earning were between P3 001 and P20 000 per month actively participated in credit markets compared to those outside this income range.

The survey indicated that COVID-19 related factors affected the supply and demand for credit in 2020. Generally, banks (commercial banks and statutory banks), microlenders and hire purchase stores viewed the outlook for demand for credit as moderate in 2021. Many banks indicated that they were reluctant to supply credit in 2020; however, the credit supply conditions were viewed more favourably in 2021 than in 2020.

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The Household Indebtedness Survey is published annually by the Bank of Botswana based on the previous year's financial information and expectation about credit developments. Data collected does not include informal credit arrangements such as metshelo and family loan arrangements. In addition, the survey did not collect information on household assets and income flows.

Bank loans (including statutory banks) to households increased from P48.7 billion in December 2020 to P51.1 billion in October 2021.

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1. INTRODUCTION

1. This survey measured the level of household indebtedness in Botswana, using data collected from commercial banks, statutory banks, micro-lenders, hire purchase stores, and proxied figures for SACCOS. The survey examined the demographic profile of borrowers; purpose of household credit; cost of credit; quality of the loan book; as well as lending policies/strategies and risk mitigation measures. The results were expected to inform policy formulation, macroprudential policy action, as well as institutional frameworks and regulations to facilitate disciplined and beneficial access to credit and mitigate the risks associated with any form of unsupported high levels of borrowing from multiple sources by the households and/or retail sector. Overall, in the context of the broader objectives of financial inclusion and economic development, policy makers need to carefully balance the benefits and risks of household debt over various time horizons and economic cycles.
2. A general expansion in borrowing by households is supportive of economic growth and development, mainly through consumption spending and acquisition of high-value assets, such as property (land and housing) and other income-generating assets (for example, capital goods and private equity investing). However, there can be an increase in financial risks when increasingly higher rates of household credit growth are either not supported by a commensurate increase in personal incomes or fail to generate sufficient wealth. Risks are especially elevated when financing conditions become unfavourable such as when interest rates or financing costs increase or when declining economic activity results in reduced employment and income earning opportunities; thus, adversely affecting the borrowers' ability to continue to meet the repayment obligations in a sustainable manner.
3. The remainder of the Survey report is organised into three sections. Section 2 describes the methodology used in conducting the Survey. Section 3 discusses the findings of the Survey, while Section 4 concludes the report.

2. DATA DESCRIPTION AND METHODOLOGY

1. The survey covered the features of household debt, including debt-to-income ratios, debt service capacity and alternative sources of funding in 2020. The debt service ratio is a key parameter for assessing the capacity of households to meet their debt obligations in a sustainable manner. The analysis makes use of information gathered from commercial and statutory banks, twenty micro-lenders and three large hire- purchase stores. To achieve the objective of the Survey, primary data was collected using an online questionnaire. The analysis was augmented with secondary data from statutory returns of commercial and statutory banks submitted to the Bank of Botswana (the Bank). Proxied data from the Department of Cooperatives for SACCOS in Gaborone Region was also utilised. The Survey questions covered aspects on the outlook for the demand for credit; demographic characteristics of households; credit application processes; characteristics of the credit/loan book; and credit risk strategies relating to household debt.
2. For purposes of this survey, household debt refers to a loan or credit acquired, or debt incurred for, among others, the purchase of assets such as owner-occupied residential property, commercial real estate, equipment, vehicles, and consumables. Households

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also incur debt for miscellaneous other uses. Interest rates, installment payments, expectations regarding future income, and wealth are all factors affecting households' decisions to borrow.

3. FINDINGS

1. Demography of Households

1. As at the end of 2020, there were 583 286 household borrowers, comprising 370 122 (63.5 percent) males and 213 164 (36.5 percent) females, at banks, micro-lenders, hire- purchase stores and SACCOS. According to Morsy (2020), credit bias towards males
   primarily reflects females' own evaluation of low creditworthiness because of relatively low financial literacy (particularly among low-income groups)3 and high-risk aversion. Indeed, banks have indicated that they did not have lending products designed to enhance financial inclusion for women.
2. Banks financed 59 percent of household borrowers, followed by microlenders (23.2 percent), hire purchase stores (14.8 percent) and SACCOS (3.1 percent). The survey indicated that household borrowers aged 30 to 49 years were in the majority in the overall credit market, at 70.6 percent (60.7 percent in 2019), followed by those aged 50 years and above (15.8 percent) and those less than 30 years (13.6 percent). In value terms, 56.3 percent (of the loans) went to males compared to 43.7 percent for females. This represented a decline from 2019 for males (61 percent) and an increase for females (39 percent).
3. The summary of findings presented in Table 3.1 shows that most of the household borrowers were Government employees (including parastatals) (59.8 percent), followed by private sector employees (36.9 percent). Those that are self-employed accounted for 2.7 percent while the unemployed individuals accounted for 0.6 percent of total household borrowers. Relating to credit provision based on monthly income levels, most borrowers earned monthly income ranging from P3 000 to P19 9994 (53.4 percent), followed by those who earned less than P3 000 per month (33.5 percent), while those earning P20 000 and above per month constituted 13.1 percent of borrowers.

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Organisation for Economic Co‑operation and Development (2013) also notes that women appear to be better than men at short-term money management behaviour; and close monitoring of every day financial expenses is a first step towards building long-term financial security and averting unsustainable levels of debt.

Monthly average cash earnings for all employees in the formal sector was P6 014 (P5 853 for citizens and P13 355 for non-citizens) in December 2020.

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Table 3.1: Demographic Information of Household Borrowers

	2017		2018	2019	2020
Gender			Percent
Males		56	57.2	54.6	63.5
Females		43	42.8	45.4	36.5
Unclassified		1

Age		Percent
< 30	12	11.6		20.5	13.6
30 - 50	68	59.9		60.7	70.6
50+	20	19.1		18.7	15.8
Unclassified		9.4

Employment Status		Percent
Government Employed	94	60.4		54.8	59.8
Privately Employed	1	25.2		43.2	36.9
Self Employed	2	0.7		0.7	2.7
Unemployed	3	2.7		1.3	0.6
Unclassified		11

Income		Percent
<>	19	27.6		33.2	33.5
P3001 - P19 999	71	59.1		56.8	53.4
P20 000+	8	13.3		10.1	13.1
Unclassified	2

Source: .Banks, Microlenders and Hire Purchase Stores

Note: . Household Indebtedness Survey for 2017 covers banks; 2018 covers banks, microlenders and hire purchase stores; and 2019 covers banks, microlenders, hire purchase stores and SACCOS; while 2020 uses estimated numbers for SACCOS.

1. In Botswana, the Government is the single largest employer and that explains the dominance of Government employees in total household debt obligations. Employment contracts in Government are mostly on permanent and pensionable basis, making Government jobs more secure or reliable for purposes of loan provision. Furthermore, domestic credit tends to be channelled to the most productive age group (30 - 50 years) in line with the dictates of consumption smoothing concept of the life cycle income hypothesis; thus, being supportive of welfare enhancement, economic growth and development.
2. 1. Types of Credit by Banks, Microlenders and Hire Purchase Stores
3. As shown in Chart 3.1, most of the lending to households by banks was in the form of unsecured personal loans, which accounted for 65 percent of the total bank credit in December 2020 compared to 63 percent in 2019. The second largest debt category was residential property at 29 percent, which is a decline from 31 percent in 2019, followed by motor vehicle loans at 4 percent and credit cards at 1 percent. In addition, the results of the survey indicated that 80.3 percent of households had a single credit commitment, 16.9 percent had two, 2.1 percent had three and 0.7 percent had four or more credit

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