Debt relief

Emma Rumney -

Solani Rivele, a single mother of four, earns about 800 rand ($55) a week but owes 100 times that amount in loans. Millions of South Africans like her rely on credit to feed their families.

Rivele has borrowed around 80,000 rand since losing her job as a security guard due to injury in 2016. Now she owes around 3,500 rand in monthly instalments, more than her monthly income.

“I can’t afford to pay because I’m a single parent, I’m the one who is providing food on the table,” the 44-year-old said in a shopping centre on the outskirts of her home township of Alexandra in Johannesburg.

“I can’t sleep.” The situation of people like Rivele shows both the potential benefits — and unintended consequences — of a new law signed by President Cyril Ramaphosa in August, aimed at protecting vulnerable borrowers.

The National Credit Amendment (NCA) comes as some lenders make healthy profits on loans while many of the country’s poorest people spend huge chunks of their income on repayments. It could see some South Africans have their debts suspended or wiped entirely, and force more responsible lending.

This could be good news for many who, like Rivele, are stuck in debt traps. However, a number of big banks said that the new rules, and the potential risks entailed for lenders, meant they had or would cut back on lending to those low-income customers who might qualify for relief in future.

“You are asking yourself, do you want to play in that particular market, or do you move away?” said Gerrie Fourie, CEO of Capitec, South Africa’s fifth-largest bank.

This could cause serious difficulties for some families in a country where the unemployment rate is almost 30 per cent amid sluggish economic growth, living costs are rising, and millions of people cannot make ends meet.

Around a third of the population rely on loans for necessities like food, according to financial inclusion organisation FinMark Trust.

African Bank, a smaller lender that targets low-income consumers, said it already had and would further reduce its lending to qualifying borrowers in response to the NCA.

Arrie Rautenbach, the retail bank CEO of Absa, said it would cut back on new lending to the riskiest borrowers among those who qualify for NCA relief, while Jacques Celliers, his counterpart at another of South Africa’s big four lenders FirstRand, said it had already gradually trimmed new lending to the group in anticipation of the law.

Capitec said in August it had, over the past two years, reduced the proportion of borrowers who would qualify for NCA relief in its lending book to less than 5 per cent.

Fourie said the figure has previously stood at 12-15 per cent, with the reduction mostly driven by a deteriorating economy, but with the upcoming credit law also a factor.

The other two members of South Africa’s big four — Standard Bank and Nedbank — said they were watching how the situation developed.

LOAN SHARKS CIRCLE?

Short-term credit, the type of credit most commonly held by the poorest borrowers, has been squeezed since lawmakers began looking at debt forgiveness in 2016.

It dropped from 3.64 billion rand in the final quarter of 2015 to 2.27 billion rand in the second quarter of this year, data from South Africa’s National Credit Regulator (NCR) shows. Cas Coovadia, who heads the Banking Association of South Africa, said the law would either raise the cost of credit for some of the most vulnerable borrowers or stop banks lending to them.

This risks some being pushed back into the informal sector, dominated by a large network of illegal loan sharks known as mashonisas, Coovadia, bank executives and some debt counsellors say.

“You don’t want people to end up in the informal sector, that is never good,” said Absa’s Rautenbach. “It’s a very bad unintended outcome.” This was echoed by Brett van Aswegen, South Africa CEO of payday lender Wonga. He said his company’s research showed mashonisas were already widely used, adding it would be “naive” to think consumers in need of cash would not go there.

Mashonisas like 31-year-old Dani, who operates in and around Northam, a mining town in the northern province of Limpopo, commonly charge interest rates as high as 50 per cent, and sometimes use violence to get their money back, according to debt campaigners.

Dani, who declined to give her surname as she is breaking the law, takes identity documents and bank cards as security, and if clients don’t pay on time, hikes the interest to 100 per cent. — Reuters