Small loans and micro-enterprises in Botswana
In Botswana, microcredit is provided by microlenders holding an NBFIRA licence, often geared towards salaried workers, while citizen micro-entrepreneurs tend to turn to CEDA's Mabogo-Dinku window and to motshelo savings clubs.
The 2012 microlending regulations
The Micro Lending Regulations, published in March 2012, require every non-bank lender to register with NBFIRA. A licence application includes a business plan, financial statements, identified business premises and the loan forms the lender intends to offer customers.
Microlenders focused on salaried workers
Unlike Sahel countries dominated by mutual credit unions, microcredit in Botswana mainly funds employees' consumption, repaid by payroll deduction. Street vendors at the Gaborone bus rank therefore have more limited access to small loans.
Free rates but transparent contracts
NBFIRA does not set a maximum rate for microlenders. It does, however, require a schedule detailing principal, interest and total cost, and it prohibits charging default interest for more than three months after a borrower falls into arrears.
Regulated early settlement charges
A microlender cannot claim more than sixty days of interest on the outstanding principal when a customer settles early without thirty days' notice. Giving written notice removes this penalty, a rule that should appear in every loan contract.
Mabogo-Dinku for very small businesses
CEDA runs Mabogo-Dinku, a window dedicated to micro and small businesses owned by citizens of Botswana. It targets activities such as tailoring, small food outlets, hair salons and welding workshops set up in villages.
Motshelo and group savings
In Old Naledi or Bontleng in Gaborone, many informal traders prefer a motshelo to microlenders. The advance received from the group is used to restock goods, with the interest shared among members at the end of the year.
Mobile money for small instalments
Orange Money, Mascom's MyZaka and BTC's Smega let traders receive customer payments and repay small instalments without travelling. The transaction history can also help a trader prove business activity to a lender when applying for a loan.
Credit bureaus and small defaults
Licensed microlenders report their customers' data to credit bureaus. Unpaid arrears of a few hundred pula can therefore jeopardise a future application to CEDA or to the National Development Bank, even years later.
Unlicensed lenders on social media
Fake microlenders canvass on Facebook and WhatsApp, promising instant payouts in return for fees paid upfront. A genuine lender does not ask for money before disbursing the loan and can show proof of its NBFIRA licence.
Moving from a microloan to CEDA or bank finance
As the business grows, a micro-entrepreneur can seek larger amounts from CEDA or a bank. The guide to the business loan in Botswana sets out these steps and the collateral lenders usually require.
Savings and credit cooperatives in Botswana workplaces
Savings and credit cooperatives, registered with the Department of Cooperatives, exist in some companies, government departments and rural communities. The overview of credit in Botswana places them alongside the country's banks and licensed microlenders.
Microcredit in Lesotho
In Lesotho, microfinance institutions and rural savings groups play a bigger role than in Botswana, where public sector employment dominates. The guide to microcredit in Lesotho compares these models of community-level finance.
Getting a small loan from a licensed provider
- Define the exact need, such as stock, a sewing machine or a fridge, and the amount in pula.
- Check that the lender holds an NBFIRA licence, or approach CEDA for Mabogo-Dinku.
- Prepare a record of sales, even handwritten, and your Orange Money or MyZaka history.
- Ask for the full repayment schedule and the total cost before signing anything.
- Repay on fixed dates and keep every receipt to build up a credit history.
Charges on a microloan in pula
| Item | Applicable rule | Practical advice |
|---|---|---|
| Interest rate | Not capped by NBFIRA | Compare the total cost of several offers |
| Default interest | Limited to three months after default | Negotiate rescheduling quickly |
| Early settlement | At most 60 days of interest without notice | Send 30 days' written notice |
| Credit insurance fees | Set by the lender | Ask for the exact monthly amount |
| Mobile money charges | Operator tariffs | Group repayments together |
Papers needed for a microloan in Botswana
- Omang identity card
- Proof of address or a letter from the ward kgosi
- Payslips for a payroll deduction loan
- Sales register or mobile money statements for self-employed activity
- CIPA registration certificate for a formal business
- Trading licence issued by the local council
Microcredit traps in Botswana
- Paying upfront fees to a lender found on WhatsApp who cannot show any NBFIRA licence.
- Using a payroll deduction loan to start a business without a repayment plan in case sales are slow to come in.
- Signing a contract with a Palapye microlender where the total cost, including insurance, appears nowhere.
- Taking a second microloan from another lender to repay the first, which quickly leads to over-indebtedness.
Microlenders, Mabogo-Dinku and motshelo
How can I tell whether a microlender is licensed?
NBFIRA issues microlender licences and publishes information on authorised entities. If in doubt, contact the authority directly before signing anything or handing over any money to the lender.
Is Mabogo-Dinku open to non-citizens?
No, CEDA products, including Mabogo-Dinku, are aimed at citizens of Botswana and the businesses they own. Foreign residents need to turn to banks or licensed microlenders for their financing needs.
Can a microlender keep charging interest indefinitely after a default?
No, according to NBFIRA a microlender cannot charge interest on a default for more than three months. Beyond that point it must recover the debt without letting the amount owed grow indefinitely.
Do informal traders have access to microcredit in Botswana?
Their access remains limited, as microlenders favour salaried workers. A motshelo, a mobile money history and registration with CIPA can all make an application to CEDA easier to support.