Local Economies:
Session 1: Indebtedness in (South) Africa
Overview of consumer credit data in South Africa including data on the
development of regulated debt counselling
Marlene Heymans (Consumer Credit Consultant)
When Deborah approached me to just give a bit of a background or discussion
here this morning, she warned me that anthropologists are not really numbers people, and
I said “but we can only talk numbers, so either I talk numbers and I’m here or I don’t
talk!” So I’m here and I’m talking numbers, but I’m going to try and touch onto some of
the stuff that Deborah asked me to address.
What I have is a fact file on consumer credit in South Africa. The National Credit
Act really came into effect on the 1st of June 2007, about three years ago now. The data is
a bit young, still, but at least it’s starting to tell some stories to us. The first thing I want
to say is that there are 4 300 registered lenders at the National Credit Regulator, those
mashonisas and stokvels that Deborah was talking about, are not there. What it includes
are the big banks, the furniture retailers, furniture shops, and registered micro-lenders. It
includes micro-lender that have a shop front, but the mashonisas won’t be registered at
the Credit Regulator and won’t abide by the laws and the rules.
A point about the stokvels. They are excluded from the Act, and its regulation. In
terms of consumer conduct market protection, those stokvels are not really directly
regulated through the National Credit Act. And, when they grant credit, they are not
necessarily providing that information to the credit regulator, we don’t see that data
formally.
The next thing is that the debt is about (R)1.1 trillion in South Africa at the
moment. That’s the total book, it’s been quite fixed for the last two years, it has not
changed, predominantly because of the housing market slump the data is quite static. It’s
driven by the mortgage market really shrinking. Which is not to say that other loans have
not increased: I’ll talk a little bit about that later.
1
We have banks accounting for 90% of all credit granted in South Africa. So
you’ve got 4 300 lenders registered, but the banks, big banks, and the likes of African
Bank, Capitec, account for close to 90%. If we add SA home loans we’re definitely over
90% of the market. So, where does credit go? A third of credit in South Africa at the
moment is for mortgage loans, close to 40% is secured as vehicle and furniture finance.
There’s the first problem, or first data point I want to bring to your attention. We’ve got
more money spent on car and furniture finance in South Africa than we have got money
or loans given on mortgages, on houses. That’s a big problem because a house is your
means to proper living and a potential means of income. Obviously your car is as well if
you need to get to work with your car, or you use your car as a sales rep., but the concern
here is that the biggest chunk of credit in South Africa is consumptive in nature. That’s
an important fact. Then, if you look at housing finance, specifically, sadly only 2% in
December 2009, only 2% of the total value of mortgages granted in South Africa went to
people earning less than R10 000 a month. That immediately tells you that there’s a big
problem in terms of housing finance, and how little money for housing finance goes
towards poor people.
Then, you’ve got short-term credit. Really we’ve got almost three times the
amount of short-term loans to poor people: 600 million in the quarter of December 2009
that went for short-term loans to poor people. And we’ve got 200 million mortgages.
Poor people don’t qualify for mortgages. The only way to get finance, get any means of
finance is on the short-term end of the loan spectrum, where they qualify for short-term,
very high-interest loans. Of that, a very small proportion of people will incrementally use
that money to expand a house or build a new room, but it will be financed largely via the
short-term credit mechanism. And why it’s important to distinguish the two is because,
under the National Credit Act, short-term loans got a much higher interest rate limit. So
the credit providers would profile their product to fall within that category so that they
can optimise the money; their total return.
Then, other data. There are about 18 million people in South Africa listed at the
credit bureau, meaning they have some form of an account, predominantly a credit
2
account. Included in this number are people who might have only an insurance product or
a cell phone contract, which is also reported. So 18 million people, that’s quite a lot if
you think that we’ve got about 30 million adult people in South Africa who could
potentially consume. So, 18 million. A lot of people will say, given the employment
figures in South Africa, this number seems quite high. However, of the 18 million people
who are on the credit bureau, only 40% of them are in good standing, are current, are upto-date with every single account, which means 60% of people in South Africa who have
an account somewhere are not up-to-date with their accounts. Somewhere they’re missing
a payment. This situation has deteriorated quite a bit in the last two years, it was a bit
better two years ago.
And then we have just a bit on debt counselling. There are about 200 000 people
that approach debt counsellors to say “I’m over-indebted, I need help.” That’s since the
1st June 2007, this is a cumulative number, so we’ve got about 200 000 people
cumulatively who are officially considering themselves to be in trouble. But that’s on a
very high level. There will be various hurdles that a person will face before s./he will
approach a debt counsellor. But currently, actively, under debt counselling, we have
between 80 and 100 thousand. So less than half of those people who have approached
debt counsellors have been accepted into debt counselling. And typically, the people who
go to a debt counsellor, it would appear that they would have total debt commitments of,
on average, between R4000-5000 a month. You can imagine that this doesn’t necessarily
include big mortgages, although there are some that do. The average for the typical client
would be between 4 and 5 creditors. But the typical debt counselling case has 10 debt
collectors per consumer. So you can imagine this over-indebted consumer approaching
the debt counsellor with at least 8 different creditors and this debt counsellor to negotiate
on behalf of this one consumer with at least 10.
Now I know there have been stories, where people think that people enter debt
counselling with debts of R26 million, R40 million. You’ve got financial managers of
large corporations, chartered accountants, who enter debt counselling with these kinds of
debts. But you have those extremes and then you have people entering debt counselling
because they’re trying to do things like make money buying a couple of houses in the
3
southern part of Johannesburg, Soweto, but didn’t work. So they’ve entered debt
counselling with 10, 12 mortgages. Those types of people, they are there. But generally
speaking, the average commitment is about R4000 to R5000 with about 10 creditors. Sisi
Pholo here would have dealt with files where there would be about 30 creditors, where
there will be credit cards galore, store cards galore, there will be mortgages, there will be
various kinds of vehicle finance – so there are some really desperate cases. But typically
the case that lands on Sisi’s desk is 10 cases and about R4500.
Just to talk a little bit more about what was said earlier, how big the salary bill is
for the government currently and how it’s grown. Not surprisingly, in debt counselling,
more than - or about - 60% of consumers who enter debt counselling are employed in the
government sector: either directly, or in the police or health sector. Again, to get back to
an earlier point, you can see - and Sisi can support this - those types of people who enter
debt counselling would be the ones who are targeted by financial products. By virtue of
them working in the government sector, they are unfortunately open to predatory
practices by insurance companies, lenders, especially if they get a salary deduction
option.
One thing I want to just mention here on the data, although it’s not very explicit in
any public published data: when you look at various data sets, it would appear that we
have seen, prior to the introduction of the National Credit Act in 2007, that a lot of banks
were issuing lower end credit card products; furniture stores and clothing stores were
trying to push consumers to get a car, buy furniture. The “grabbing” of consumers prior
to 2007 really has had a big impact. I think we still see that working out through the
system. But now we see less usage of store cards and limits decreasing. A lot of the data
show that there are many stores that are now actually decreasing limits on credit
facilities, on certain customers. In the last year and a half or so, there were quite a lot of
incidences of that.
But I want to put it on the table, although it’s not explicit in the data, that I think
there was a push in the last 5/6 years for consumers to take on more consumptive debt,
and because of that, although we can’t say that for certain in data, we’ve just excluded
these people from proper mortgage debt. Now we’re in a situation where mortgage credit
4
has really shrunk significantly. Consumers are a bit over-stretched, but banks have got
funding constraints and that has got a serious impact on the risk they’re prepared to take
at the lower end of the market. Really, we have to come up with a solution, especially in
the mortgage market. How can we move downstream, get a viable product, get housing
finance working better for the poor? That house in the end will have a much better chance
for the consumer, to generate an income, or improve his livelihood, than buying cars or
furniture.
Discussant:
Penny Hawkins
Certainly the stories that have been told here are really stories about complexity of the
nature of people’s financial arrangements, a huge amount of innovation in the way in
which people arbitrate between formal and informal activities as and when they present
themselves, and of course that all relates to a real complexity of risk management.
Increasingly, in terms of the studies looking at financial access and indebtedness
and so on, there’s been greater recent awareness of this interplay between formal and
informal products, and certainly one of the recent studies undertaken in Cape Town, the
Financial Diaries project, was very useful in setting that out over a period of time.
I think, for me, the excitement, of course, about reading these stories is to see that
perhaps when one looks at the world from an economist’s perspective, and we all know
that’s the dismal science, there are some good stories to tell here. The story of developing
alternatives when the formal sector arrangements have disappointed or proven to be
unsuccessful – the stories that Deborah tells about the credit clubs, where savings, or use
of formal sector credit through higher purchase or a lease agreement, actually failed
people or turned out to be problematic. And then of course, the cattle safekeeping process
described by Dafinger resonates with something like the Financial Diaries where you
have the money guarders - I’ll give you money to keep from my drunken husband or my
predatory neighbours or whatever.
5
I think one of the big problems that one sees in the literature so far, is that we still
so often fall into the trap of “that which we measure exists” – “I measure, therefore I am
and therefore you are”, “If I can’t measure it in formal mechanisms, then it simply
doesn’t happen”. One of the things that comes out and resonates with some of the other
work that we’ll see later on today, is this vexed issue of measurement of savings: are
people saving, what are they saving, in what forms? And, the problem is our national
measures capture such things as formal products with the formal sector. So, yes, we’re
paying-off a mortgage, that will be captured, yes, we’re contributing to Old Mutual’s
pension fund, that is captured. But things like incrementals, housing, contribution to a
funeral group that are in fact far more meaningful to me as an individual, because there is
far more on the compassionate adjustment and flexibility as I need those products, that all
falls by the wayside, and therefore - from the perspective of national statistics disappears. It just doesn’t exist.
What we have been hearing about today is innovation. In Marlene’s paper we can
see the innovativeness of the credit providers. If you think about the growth in credit
cards and store cards prior to the birth of the National Credit Act in, say around 2002,
when the disbursement of credit first became an issue for examination, we perhaps had a
million credit cards, we now have six million. We had maybe a half million store cards,
we now have 11.7 million store cards out there. These have all been thrust upon people
who admittedly didn’t know what they were getting into, they thought it sounded like a
marvellous deal.
There is this concern that you’ve raised about financial education. Education is
like motherhood and apple pie, everybody believes in education - it is a fantastic thing.
The problem is, how do you deal with an environment where people are pushing credit
down people’s throats and selling it in such a desirable and excited way: “don’t you want
to be able to buy more clothes for the winter? Or, ensure that your children have the
appropriate school uniforms?” Or whatever it is, however it’s being sold. Does education
actually deal with that push, that creative marketing energy of the credit providers? I’m
not entirely sure that we can say that more education will help, I think only over
generations perhaps more education will help. If we have really good education of our
6
children, there’s just a chance their budgetary skills will improve and they may be
slightly better off in the world.
However, I think the story that we have challenges another typically, perhaps neo-liberal,
perspective on the world. And that is this kind of belief that we progress from one stage
of development to the next. And we know, history teaches us, that that’s false. This
notion that informal is ok but purely formal is fantastic, and that’s the ultimate in all
progression, I think these studies have really challenged us and they need to keep us on
our toes.
7