Africa-Press – Namibia. The decision to cease payroll deductions on the government Payroll Deduction Management System (PDMS) by 30 November will not mark the end game for civil servants, the Ministry of Finance’s Executive Director Michael Humavindu has assured.
Humavindu said a review process and wide consultations with stakeholders are currently underway on the matter and other alternatives could be introduced.
The ministry issued a directive on 28 August, informing government employees and financial institutions that all discretionary payroll deductions through the PDMS, which is operated by Avril Payment Solutions, will be discontinued come 30 November.
The phasing out of the PDMS will mean that lenders will now be required to conduct proper affordability valuations and carry more risk themselves.
For thousands of civil servants, the end of payroll deductions is expected to significantly affect how they structure their monthly payments and how they will be accessing credit going forward.
The ministry’s directive indicated that after 30 November, no new discretionary payroll deductions may be loaded onto the PDMS and that only existing loans already linked to the system will continue to be serviced until they are fully repaid. However, statutory deductions such as employee tax payments, pension and social security contributions will remain uninterpreted on the system.
Employees have been advised to make alternative payment arrangements through bank debit orders to service new loans, insurance premiums, union fees and any other voluntary financial undertakings.
Not final
Humavindu, while calling for calmness amongst thousands of distraught civil servants who stand to be directly affected by the latest directive, explained that the move is not a punitive measure of any sort and nor is it meant to push Namibians further into financial ruin.
“We are not doing away with it. We are basically implementing something that was started already in the 2000s when industry players came together with the central bank and the ministry to look at what was causing this huge over indebtedness of government employees in terms of us having this system. It doesn’t help to provide loans to someone and that person ends up with a N$15.00 after all deductions per month.
“So, the industry itself at the time decided to create what is called the Enhanced Debit Order (EnDo) system, which it introduced in 2021. So, we are not doing away with the system but essentially saying that given the fact that the contract is ending, let us also come together and see how we can either enhance it or look at other ways on how to do it,” said Humavindu.
He continued: “In our letter sent to the industry, the ministry basically said since that contract [PDMS] is ending and it speaks to a public procurement function and requirements, we will in the meantime take over that process. However, for new loans, you now need to go to what the industry created which is called the EnDo debit order platform, which is for all industry players.”
Industry players
The sprawling effects of this decision is already being felt, as Agribank yesterday was the latest lender to announce a moratorium on its salary-backed loan facilities for all government employees.
“Agribank hereby informs the public that, following the announcement by the Ministry of Finance regarding the termination of services with Avril Payment Solutions (APS), no new personal loans for government employees will be processed through the APS platform. As a result, Agribank has placed an immediate moratorium on its salary-backed loan facility for government employees,” the bank’s CEO Raphael Karuaihe said.
The bank’s salary-backed loans were introduced to enhance financial inclusion for farmers without collateral and promote agricultural activities in both communal and commercial areas by providing access to finance with repayments effected through payroll deduction.
Last week, Letshego Holdings Namibia and its subsidiaries, Letshego Bank and Letshego Micro Financial Services, also announced that they had, effective immediately, suspended all new salary-backed loans to government employees in response to a directive from the finance ministry.
Limitations
Touching on what triggered government to institute such a move, Humavindu explained that the decision is associated with procurement limitations, regulatory concerns raised by both the central bank and the Namibia Financial Institutions Supervisory Authority (Namfisa).
He added that the latest move also aims to have a deeper look into the integrity of the national payment system, as some microlenders are heavily relied on payroll safeguards to recoup their money rather than conducting affordability checks and balances as required by law.
“Some of the microlenders and other financial institutions felt that they were being excluded from the Ministry of Finance deduction code system.
So, the industry then said, let’s create an open field where all of us can participate. As said, we are now busy doing stakeholder consultations, and we still have to consult our leadership on the outcome. We will meet the unions and continue speaking to institutions that might be affected going forward. And of course, regulators such as Namfisa will be in the stakeholder consultations, making presentations, and not only the ministry.”
“In the next three months, we want the industry to start migrating to the EnDo platform that they created, also, during those three months, we will look at other alternatives in terms of the current system of code deduction management system because it is a public procurement matter where you have to go to the Central Procurement Board if we perhaps come up with another solution that we might want to pursue after this contract ends.
We also have a national consumer credit law that is being worked on with Namfisa which will create a balance between debtors and creditors,” explained Humavindu.
Out of more than 900 financial intermediaries, only seven have access to the government payroll deduction system, which creates an uncompetitive market for other lenders.
Difficulties ahead
Going forward, loan approvals are expected to become more difficult, particularly for lower-income and rural employees, as lenders will no longer have the security of direct payroll collection, and this will likely tighten lending terms and reduce loan sizes.
On the other hand, banks and microlenders are also expected to increase interest rates and fees to cover higher risk, which could make even small monthly repayments more expensive once debit order charges are applied.
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