Policy Blunders (PSMFC loans)

The Public Service Microfinance Company (PSMFC) has announced that it has so far disbursed K70 Million to 4, 000 Civil Servants spread across 74 districts around all provinces. The Government funded financial lending institution offers loans to civil servants at 5 percent annual interest rate subsidised by tax payers. (Source : Mwebantu)

CEO Mubanga Mwiko says the available funds for the public service loan scheme in 2014 is K107m of which K100m is the budget provision for the year and K7m are carry-over funds from 2013.  

The PSMFC recently hinted that all employees of of quasi-government institutions may soon be eligible to access the subsidised loans. Government wants to "shield public servants from unfavourable lending rates". 

Last time we discussed this issue there were two issues that arose. First, many wondered whether the facility actually exists. Mubanga Mwiko says it does and it has given over 4,000 servants. Those government employees who appear not to have heard about it should contact their local Member of Parliament and take it from there. 

The second question is more important - does this scheme make any sense at all? The consensus was best summarised by one contributor who called this a PONZI SCHEME. The 5% substantially lower than the market rate. So a smart person should simply borrow the money and lend it back to government or deposit it any bank account. 

The rate is substantially lower than the cost of capital for government. Government is borrowing money at 18% or so domestically. And it is lending this money at 5%. And much lower than inflation. No sensible person would ever borrow at 18% and lend to another at 5%, but people are happy to do it with public money. It is economic madness and frankly the highest form of moral irresponsibility.

Others noted that at best this is more of a poltical tool to reward loyal supporters of the government. And one hopes it will only run until 2016 and fold thereafter. The bigger question many have asked is whether this K107m cannot be better spent by giving it as direct cash transfers to people living on less than $2 a day. People currently dying due to poverty, diseases, poor sanitation and other man-made calamities. 

When are we as a people going start looking beyond our stomachs and look around and see that people are dying due to selfish government policies and greed? That K107m can save a life.