Financial difficulty rarely begins with a missed repayment. It often starts much earlier, when a salary arrives and most of it is already committed before food, transport, electricity and other basic needs have been paid.
This is financial overcommitment: when monthly income can no longer adequately cover both household needs and debt obligations. A borrower may still be paying on time, but only by cutting essential spending, requesting repeated loan top-ups, borrowing elsewhere or using one loan to settle another.
The Bank of Botswana estimated household debt at P68.6 billion in December 2024, up 12 percent from P61 billion in the previous survey.
Credit is not inherently harmful. It can help to cover unforeseen expenses, educational needs, the building of a dream home and even fund business opportunities. The problem arises when borrowing stops creating long-term value and becomes the means through which a household survives from one month to the next.
FinScope Botswana’s 2024 Consumer Survey found that 79 percent of adults worried that they would not have enough money to make ends meet. Only five percent were classified as financially healthy, while 53 percent were considered financially vulnerable. This demonstrates why responsible lending must consider more than whether a customer technically qualifies for a loan.
In my years working in the financial sector, I have seen borrowing become more accessible and contribute significantly to financial inclusion. This is a positive development. However, it has also increased the responsibility placed on both lenders and borrowers. The question should not only be, “Does this potential customer qualify?” It should also be, “Can this customer carry the loan sustainably while continuing to meet their household needs?”
The warning signs often appear before the first missed payment. When debt repayments consume more than 60 percent of a customer’s net salary, closer scrutiny is required. This is not a universal rule, but it is an important warning signal.
Some indicators include repeated top-ups, borrowing before payday, taking multiple loans and using new debt to settle old debt.
The purpose of a loan therefore matters increasingly. Debt is productive when it contributes meaningfully to improving the borrower’s life or financial position. It can quickly become harmful when the benefit is brief or short-lived, yet the repayment continues for years.
Affordability assessments are essential, but they should never become a box-ticking exercise. A customer may qualify on paper, while their borrowing history, patterns, purpose and future prospects suggest that another loan could deepen their financial difficulties.
For customers who are already under pressure, recovery should begin long before default. A critical first step is to engage the lender early. Borrowers should prepare a clear picture of their income, essential expenses, outstanding balances, instalments and repayment periods, and then discuss their situation honestly.
A recovery plan will not work if the customer continues adding new debt. Reducing non-essential spending, pausing further borrowing and directing additional income towards outstanding obligations are necessary steps. The objective should be to restore sufficient disposable income for the household to meet its essential needs and live with dignity.
Credit can and should remain a pathway to prosperity. When it repeatedly postpones financial difficulty instead of resolving it, it has stopped being a solution and become a burden.
As such, borrowers are encouraged to reflect on their borrowing needs and refrain from borrowing to cover day-to-day needs if they wish to ultimately build a better future for themselves and their loved ones.
Joachim Klitzke, Managing Director, Peo Finance