Let them eat plastic?
Just as interest rates in South Africa, and practically the entire world, are set to rise, the department of trade and industry has intervened to soften the blow for consumers. Any help is welcome. This week it was revealed that consumer confidence had reached a 14-year low.
The move to reconfigure the way that Reserve Bank governor Lesetja Kganyago’s repo rate affects the credit market did not appear in a vacuum. It is calculated to take the sting out of the tail of the inevitable rising tide of interest rates.
All over the world, interest rates have bottomed out as governments have tried to fend off the effects of the economic crisis by providing easy credit. South African debt, like all debt, will become more expensive in the near future – there is no way around it. The department’s plan will reduce the impact by stopping banks and other lenders from passing on the hikes to the full extent that has so far been possible.
Microlenders see it as a misguided attempt to achieve greater access to credit by dropping prices. The mashonisas are waiting – and grinning, they say. Many South Africans can only reasonably be given credit at rates of more than 30%, they say.
If that cannot be done legally, there are more than enough people willing to do it illegally.
Government believes it is facing a tough choice between access to credit and manageable debt burdens.
Industry says the real choice is between visible and regulated usury or invisible, free-for-all usury.
One thing is sure: South Africans are still borrowing en masse. According to the latest consumer credit statistics, South Africans have debt of about R1.6 trillion. Half of that is related to mortgages and another 22% is tied to cars.
Credit cards, overdrafts and the ballooning universe of store cards add up to another R207 billion.
Short-term loans are booming. A total of 1.34 million little loans were granted in the first quarter of this year – 70% more than a year ago.