New book on SA microfinance provides valuable perspective
BACK in 2005, when government was looking to introduce the National Credit Act to provide borrowers with better protection against predatory lenders, it was advised not to bother with the new legislation.
Instead, a group of private sector lawyers advised officials to rather amend the Magistrates’ Court Act to address abuses.
They argued: “Rather than passing new legislation, why not amend the Magistrate’s Court Act by making it mandatory to have judgments dealt with in an open court of law rather than being given, often fraudulently, by uneducated clerks of the court?”
That submission — made during the 2005 parliamentary hearings on the proposed legislation — is referred to in a new book by Deborah James, which puts South Africa’s debt industry under a microscope.
James is an anthropologist at the London School of Economics, so her book, Money From Nothing — Indebtedness and Aspiration in South Africa, presents a more nuanced perspective than we’re accustomed to getting from bank-employed economists or trade unionists.
Despite the untold misery that uncontrolled lending has caused — not only in South Africa but across the globe — James does not attempt to demonise the industry. It is necessary and has enabled huge achievements, she argues.
James attempts to describe the context in which levels of consumer debt soared in the decades after 1994.
She asks: “Are South African borrowers extravagant or thrifty? Are they unsustainably overindebted or do the items they invest in justify the means they use to do so?”
Part of the answer, she says, “lies in the rapidity of the transition and the grand scale of the accompanying expectations: it was not only political liberation but also wealth, comfort and wellbeing that were hoped for, as well as the restoration of all those benefits that had been previously withheld”.
Inevitably, the book also delves into the very ugly part of the industry, the crippling debt levels that caused tension at Marikana and the battle over illegal garnishee orders.
On the one side are borrowers who get caught up in a cycle of ever-increasing debt and the attendant extortionate, and often illegal, charges. On the other, you find the lenders who often operate on the borders of legality, able to twist new legislation intended to protect borrowers to their own benefit.
“People of all sorts make money ‘ from nothing’ by charging commissions or adding interest at every point in the value chain,” says James.
There is also a racial dimension to this story. After 1994, the public service was restaffed by blacks, leaving many of its former white Afrikaner employees to seek alternative ways of making a living. Many of them did so by using their generous retrenchment packages to move into microfinance. Ironically, many of their new clients were newly appointed civil servants.
Asked at a book launch earlier this week what policy options should be used to address the worst of the abuses, James said the best hope could be the recent court action initiated by Stellenbosch University’s Legal Aid Centre. It seeks to get the sort of amendments to the Magistrates’ Court Act suggested all the way back in 2005.