Government says it has deliberately withheld the remittance of some payroll-deducted loan repayments to banks and microfinance institutions over the past four months as part of an investigation into widespread non-compliance with lending laws, following allegations that some lenders were charging illegal interest rates that saw salaries of some civil servants being wiped out.
“Over the past four months, Treasury acknowledges that there have been delays in the disbursement of payroll-deducted loan repayments to certain financial institutions. These delays, however, do not reflect any breakdown in public financial management systems. Rather, they are the result of a deliberate and necessary intervention by Treasury, executed in the context of an urgent and comprehensive investigation into widespread non-compliance by some lenders,” Treasury said in a statement released on Wednesday this week.
“This investigation was triggered by mounting evidence of exorbitant interest rates being charged by certain microfinance institutions and banks. These practices, in many instances, are in direct violation of Zimbabwean financial laws, including the Moneylending and Rates of Interest Act [Chapter 14:14], the Microfinance Act [Chapter 24:29], and the common law in duplum rule, which prohibits interest from exceeding the principal debt owed.
“Furthermore, a number of institutions have been found to be in breach of regulatory provisions that cap loan repayments at a maximum of 50% of a borrower’s net monthly salary.”
Treasury said that in some extreme cases, civil servants were left with virtually no disposable income after loan deductions.
“This situation has created significant social and economic challenges for affected workers, including financial distress, limited access to basic household needs and heightened vulnerability to hardship. These developments compelled Treasury to intervene promptly in order to protect the well-being of public sector employees and ensure compliance with the law,” it said.
“The temporary withholding of remittances was a targeted measure intended to allow for a full-scale compliance audit of all active payroll-linked lenders, as well as to facilitate regulatory engagement with the Reserve Bank of Zimbabwe (RBZ) and other oversight bodies on the appropriateness of prevailing loan terms and interest rates.”
However, the ministry said it had resolved the issues with all but two financial institutions, and that payments had since resumed following confirmation of regulatory compliance.
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