Taoloka loan default rate worries NBM

The National Bank of Malawi (NBM) Plc has raised the alarm over high default rate on its Taoloka Finance Loan facility by vendors accessing the loan in Mzuzu City.

NBM director of retail banking Oswin Kasunda raised the alarm during a Taoloka Customer Interaction Breakfast in the city on Friday.

The bank launched the loan product which has a K5 million loan limit for urban market vendors in August, 2022, having noted problems which vendors were facing in accessing additional financing to boost their businesses.

While the bank is satisfied with the impact the loan facility has made since it was launched with over K1.3 billion disbursed to over 400 vendors, loan repayment has been a challenge for some vendors.

For example, Kasunda revealed that the current state of defaults, which is at 17 percent in Mzuzu is worrisome considering that the loans being granted are unsecured.

“When you are granting loans you must always expect that there will be some customers that are going to default and that is part of the business. However, there are tolerable levels of defaults that banks can take,” Kasunda said.

He added: “So far we have noted that the default rate is slightly higher than the one we expected. These are loans that are unsecured and since they are unsecured, there are no tangible assets on which the bank can fall on.

“There are ways of managing the debts and there are ways of debt chasing. We have recovery processes but you know this is the relationship between the bank and the customers. We need to go through the process, we need to engage them and not just go with a heavy hand.”

While acknowledging the problem of defaulters, Mzuzu Central Market Vendors chairperson Alexander Sikwese appealed to the bank to simplify the loan application process and review upwards the loan limit.

“When accessing the loans it is really tough. The bank demands business plans yet most of us did not go to school. Again, the loan has a K5 million limit and when they assess your business they reduce that amount, so, sometimes you get a loan that you did not plan for hence some are defaulting,” Sikwese said.

Responding to the appeal, Kasunda said they have taken note of the concerns stressing that, it is the reason the bank holds such interactive sessions to get feedback from customers.