CABINENT has approved the introduction of the Deposit Protection Policy to protect depositors against the loss of their insured deposits placed with institutions licensed to operate banking or finance business.
business
May 16, 2021
NEO SENOKO
2 min read
Deposit protection scheme on the cards
The Minister of Communications Science and Technology Keketso Sello
As an integral component of an effective financial safety net, a Deposit Protection Scheme enhances consumer protection by providing explicit protection to depositors.
It is a scheme established by the government to protect depositors against the loss of their insured deposits placed with member institutions licensed to operate banking or finance business.
Depositors will know when, how much and how their deposits are protected in the event of a bank or insurance failure.
The scheme contributes to financial stability and prevents bank runs if depositors have confidence that they will have access to their funds when a bank fails.
On Tuesday, the Minister of Communications Science and Technology Keketso Sello revealed that Cabinet has approved the introduction of the said policy.
The Minister told Metro on Wednesday that the Central Bank of Lesotho (CBL) has already passed the same directive to stakeholders that include commercial banks as well as insurance entities in the country.
“The CBL has actually given a directive to stakeholders to prepare for the introduction of the Deposit Protection Scheme in a move to protect depositors in cases of liquidation,” Mr Sello said.
He added that players will be expected to deposit funds into the scheme depending on the number of clients each institution serves.
“The more clients you have, the more you pay. Our deposits should be in safe hands and maybe in future as the scheme develops, it will reach to a point where other measures of making more money will be implemented, thus apart from member institutions having to deposit funds,” Mr Sello further showed.
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The said policy will later be turned into an Act of parliament guiding scheme.
If introduced, Lesotho will join a number of other SADC countries whose financial institutions are guided under the same principles.
Zimbabwe, for instance, has its own Deposit Protection scheme which clearly outlines that in the event of failure of a member institution, a client is guaranteed to receive compensation in full provided the account balance is equal to or below the prescribed cover limit.
Other benefits of such schemes to the depositors are that the latter do not lose all of their hard earned savings in the event of failure of a member institution. Depositors will also be in a positon to know how and when reimbursement of their deposits will be made in the event of failure.
The member institutions on the other hand are set to benefit through the scheme in that public confidence is likely to be enhanced and the likelihood of panic withdrawals will be limited and thus contributing to the stability of the financial system.
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