Civil Servants’ Multiple Borrowing Pushes Microfinance Loan Defaults up to 16.2%-BoZC
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NewsCivil servants’ risk of loan default remains […]
Civil servants’ risk of loan default remains high despite virtually all their loans being salary-backed, as some public workers bypass borrowing limits by taking out loans from multiple lenders simultaneously.
According to the Bank of Zambia’s (BoZ) 2026 Financial Stability Report, the share of loan delinquencies among public workers at microfinance institutions (MFIs) remained at 16.2%, significantly above the prudential threshold of 10%.
The high level of loan delinquency among civil servants has primarily been attributed to the failure by some public workers to provide adequate coverage for loan repayments exceeding the maximum debt service ratios due to over-indebtedness.
Economic expert Trevor Hambayi said loan defaults in the financial sector, particularly among microfinance institutions operating above the 10% non-performing loan (NPL) threshold, attract additional charges from the Bank of Zambia.
Speaking in an interview with Zambian Business Times-ZBT, Hambayi noted that rising loan defaults among civil servants increase the cost of doing business for microfinance institutions, making it difficult for them to meet their own loan repayment obligations and potentially affecting their operations.
“Increase in loan defaults among civil servants does not only affect microfinance institutions in terms of operational costs, but also poses a critical risk to their ability to generate sufficient resources to meet their own loan repayment obligations,” he said.
He added that the government must adopt a clear strategy to address rising loan defaults among civil servants, with financial literacy forming a key part of the intervention.
“Financial literacy should be one of the government’s approaches to addressing loan defaults among civil servants. This is because microfinance institutions primarily target civil servants when issuing loans, as they expect repayments to be deducted directly from their salaries,”said Hambayi.
Hambayi further urged microfinance institutions to strengthen their due diligence processes by checking how many loans a civil servant has obtained from other financial institutions before approving additional borrowing.
“In essence, there must be a central database where information on loans taken out by individual civil servants is recorded, with every microfinance institution having access to the information to establish who has borrowed and how much,” he said.
Meanwhile, a further review of the BoZ report by ZBT revealed that the concentration of credit among government employees not only highlights the lack of diversification in microfinance institutions’ loan portfolios but also exposes them to potential material losses.
Article by Justine Phiri
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