DEBT, AND THE MISSING 9M
So many more people have debt than have jobs in SA. Not only is it an indictment of lending practices, it’s also a big risk for social stability
Last week, economist Mike Schüssler posed an intriguing question: how is it that only 43% of South Africans between 15 and 64 have a job (16.2million people), yet 68% of that demographic (25-million people) are “credit active”? In others words, how can there be 9-million people who don’t have jobs, yet qualify for loans?
This scenario has the makings of the sort of epidemic SA hardly needs, when it’s already facing a crisis of unemployment. If people are getting loans they can’t hope to repay (unless they get a new loan to do so), it’s the textbook definition of a debt trap.
Well, there is an answer, of sorts, to Schüssler’s question, even if it’s a bit grubby. It’s the behaviour of microlenders like Net1 UEPS, Capitec, and their rivals.
Net1, in particular, has been making millions “lending” to the 17-million people surviving on social grants.
For years, it had the contract to administer the grants (which was awarded unlawfully, the courts found). But it also sold microloans, funeral insurance and airtime to grant recipients. It would deduct “repayments” for those products before paying out the monthly grant.
The outcome, in many cases, was perverse.
For example, Julia Mthimkhulu, 60, a grandmother in New Brighton, Port Elizabeth, told the Herald newspaper a few years ago how her R1,350 monthly grant was being mysteriously debited — including R200 for electricity she had never bought and no fewer than 18 instances of R5 airtime vouchers “bought” from MTN.
“The discrepancy that Schüssler speaks about is, in large part, due to the grant beneficiaries getting loans,” says Clark Gardner, who heads Summit Financial Partners, a lobby group that has tackled lenders and collectors alike for harmful practices. Companies like Capitec, Capfin and Lewis Stores. “Most of the primary grant beneficiaries we see are credit active, and it’s a sad reflection of how companies are selling credit where it shouldn’t be sold,” he says.
This week, a company called Debtsafe released its inaugural Reckless Lending Indicator, which it calculated after investigating 5,591 credit agreements that were under debt review between April and July. To some extent, there is selection bias, because these were agreements where something had already gone wrong. But still, the numbers were astounding.
Debtsafe calculated that 40% of all those agreements “appear to be reckless”. Before coming to its conclusion, Debtsafe contacted the lender in each of the 5,591 contracts, and asked to see the affordability check and other documents. The largest number of shoddy contracts, 271, came from First National Bank, followed by Capitec (146) and African Bank (123).
First, this makes it clear that the National Credit Regulator has been snoozing through this entire debacle. Second, the sheer number of apparently reckless contracts should be a wake-up call to those who merrily dismissed claims by research house Viceroy that Capitec’s business is premised on “predatory lending”.
“In many cases, you can have a family member sign surety for your loan, but the fact is, you still have to service that loan,” said Debtsafe’s Matthys Potgieter.
The Black Sash has been fighting in court for years to stop Net1 and its subsidiaries from making illegal deductions from grants — typically to repay microloans, or for products like airtime.
The good news is that from next month, the SA
Post Office will take over the grant repayment contract from Net1. Thankfully, the post office accounts are ring-fenced and won’t allow these deductions.
But even under this new dispensation, it will still be possible to pay grants into accounts that beneficiaries hold at the commercial banks, or into Net1’s Easypay Everywhere account. And in these cases, it will still be possible to make deductions from those grants.
Net1 has reaped the whirlwind of this havoc. Its share price is down 56% over three years and, for the nine months to March, its net profits fell 48% to $32m.
With zero self-awareness, Net1 dubbed its lending business part of a “financial inclusion” strategy. And in May, it said: “We look forward to being released from the social grants contract by the end of September, [as it] will allow us to refocus our considerable skill and experience in delivering commercially compelling services to the unbanked population.”
It would be a nice change. Until now, its “compelling services” were based on exploitation and cynicism, rather than anything deeper. It will be interesting to see whether Net1 CEO Herman Kotzé can revive his company’s reputation after the years of abuse. Nobody is holding their breath.
This makes it clear that the National Credit Regulator has been snoozing through this entire debacle