Central Deduction Administration System (CDAS)

Business Challenges
In the Kingdom of Swaziland, the Employment Act limits non-statutory deductions (mostly arising out of borrowing) to one-third of an employee’s basic salary. This ensures that employees are not left with very little to take home at the end of the month. The Government, which employs almost one-third of the employed population in Swaziland, previously used a manual system to make the necessary calculations for civil servants salaries. This was both time consuming and prone to human error.

Furthermore, an employee could authorize financial institutions to make deductions but the institution could not check if this deduction would lead to the total deductions exceeding the limit set by the Employment Act after adding to existing deductions the borrower had previously authorized. Hence, the employee could push the Government into breaching its own Employment Act.

 

Solution
The Central Deduction Administration System (CDAS) aims to establish an affordability check and control deductions so that requirements of the Employment Act are complied with. CDAS is a software that stands between the Government Payroll System and the financial institutions like banks, insurance companies, micro lenders, and others. These institutions receive Government authorized deduction codes allowing them to request for deductions from a government employee’s salary for payment to the institution.

CDAS was developed by DataNet Swaziland and has been used in Swaziland since 2009. A similar system (known as CPDP) is currently used in Botswana. Lesotho is also in the process of implementing the solution in the near future.

 

Loan request verification
When a government employee requests to borrow money from a financial institution, the request is checked by the institution through the CDAS software. The software adds the proposed deductions to any existing deductions and compares the total with the limit set by the Employment or other relevant Acts. The new deduction can then be accepted, scaled down or declined on the basis of the maximum deduction rule.

As an employee’s pay can vary from payday to payday, each individual’s repayments are checked each month and if necessary, pro rated to ensure that net pay is non-negative. Full deductions resume as soon as the basic pay allows.

 

Transactions and reconciliations
CDAS aggregates and transmits authorized deduction requests, it does not initiate deductions. Government transfers the total deduction amount payable to financial institutions to a bank account in trust for the institutions. Each institution in the CDAS system receives the amount due to it within 24 hours of the transfer of funds by Government.

The system can produce a statement reconciling that received amount with the amount of deductions expected from each civil servant. Another statement of the total amounts deducted from each employee and remitted to the institutions for which employees have authorized deductions can be produced for the Government.

 

Benefits

For Financial Institutions

  • Loan requests can be checked with requester’s current credit status in real time.
  • Loans can be disbursed with full assurance that repayment through deduction will not breach the Employment Act limits.
  • Loans can be disbursed with reasonable assurance that deductions will be successful.
  • Customer satisfaction increases with ability to respond quickly to borrowing requests.
  • Deductions are transmitted to the institution quickly and with full explanation.

For Government

  • CDAS dramatically reduced the burden of payroll administration and at no cost to the government.
  • No staff time needed for manual and error-prone calculations, and for reconciliations with institutions.
  • No chance of violating the Employment Act.

For Employees

  • Third-party deductions from salary will not be over one-third of the basic salary.
  • CDAS assists over-indebted employees to restructure their debt and become debt-free.
  • Responsible borrowing is easily and quickly approved by the financial institutions.

 

Further Readings
ICTs in Developing Countries: Research, Practices and Policy Implications
(by Bidit Dey, Karim Sorour, Raffaele Filieri)

Times of Swaziland
“CLAS to eliminate unfair lending practices”

Times of Swaziland
“Consumers to borrow within their means”

 

Partners
ITQ Consultancy Services is an associated company dealing with Mainframe programming and other specialized solutions.

 

Implementations
CDAS – Government of Swaziland
CPDP – Botusafe, Botswana
CRDMS – Government of Lesotho