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OFFICIAL statistics note that South African household borrowings have declined slightly. However, we remain a nation wallowing in debt. And this applies from the government down to the humblest of families.
Along with the steady increase in the cost of living, this is a major reason for prolonged and bitter strikes and for ongoing social instability.
Admittedly, we are not alone in carrying a heavy debt burden: many countries face similar or, on the face of it, worse situations. But, because of our recent history and the heightened - and now largely frustrated - expectations of the 1994 transition, the level of desperation and anger among the relatively impoverished majority is understandable.
And as we are regularly reminded, we have if not the worst, certainly one of the worst discrepancies between rich and poor anywhere in the world. At the same time, a number of corporations and companies continue to reward their directors and chief executives with pay packets that are justifiably regarded as obscene.
It is therefore understandable that such factors result in anger and bitterness among lower-paid workers and the unemployed. And there is every indication that things are getting worse.
The collapse in the exchange rate value of the rand, for example, is already being felt in the rise in fuel prices that will have a knock-on effect throughout the economy.
If history is anything to go by, this situation will again see the country moving towards a period of higher interest rates. And this will almost certainly force more citizens into the ranks of the 10 million who already have what are politely referred to as “impaired credit records”.
It is not as if there is anything new in this situation. A decade ago, with concern being expressed that the poor were carrying a disproportionate debt burden, the government started debating the National Credit Act (NCA) that came into force seven years ago.
Good intentions, bad consequences
It is a good example of how actions based on the best of intentions can backfire.
In the first place, the NCA made it more difficult for lower-paid workers to access credit. The legislation also restricted the rate of interest that may be levied on “microloans” (those under R8 000) to 5% a month. But this is equal to 60% a year - and does not take account of administrative fees and other legal “add-ons”.
To ensure payment, some lenders have also demanded - and been given - the right to have debt repayments made directly from an employee’s wages. Many of these “garnishee orders” have been shown to be illegal, both in terms of not having been approved the courts and to have included interest payments beyond the NCA limits.
Once again it is the army of the working poor who are the main sufferers and, as was recently revealed, many of them are miners. But it is not only a lack of financial education that leads workers into signing away more than they legally should; desperation is more than sufficient.
However, there are millions of South Africans who cannot - or do not know how to - access already exorbitantly priced loans from legitimate sources. Their only recourse is to the mashonisas, the township loansharks whose interest rates and methods of debt collection can only be described as brutal.
Because many workers often require relatively small loans for short periods, employees in a few workplaces have operated on the stokvel principle, putting money into a common “pot” that can be drawn on by those in need of a loan until payday.
It is a practice the unions could have adopted, but never did, so opening the door to “payday lenders” such as British-based Wonga.
Wonga adheres to the NCA, providing loans of up to R2 500 for 30 days or less. But a R2 500 loan over 30 days costs R541.96.
Because administrative and other fees added to the legal 60% pa interest rate remain the same no matter the size or term of the loan, a lesser amount over a shorter period results in much higher repayments. For example, to settle a R100 loan over seven days costs R176.10.
There is obviously great demand for payday loans and Wonga is extremely profitable. Here is a clear lesson for the labour movement: surely its billions of rands in investment funds would be better - and profitably - used in providing reasonably priced loans to members rather than going to investment companies that, to use union terminolog, rely on the exploitation of other workers.
- Fin24
* Terry Bell is an independent political, economic and labour analyst. Views expressed are his own. Follow him on twitter @telbelsa
Along with the steady increase in the cost of living, this is a major reason for prolonged and bitter strikes and for ongoing social instability.
Admittedly, we are not alone in carrying a heavy debt burden: many countries face similar or, on the face of it, worse situations. But, because of our recent history and the heightened - and now largely frustrated - expectations of the 1994 transition, the level of desperation and anger among the relatively impoverished majority is understandable.
And as we are regularly reminded, we have if not the worst, certainly one of the worst discrepancies between rich and poor anywhere in the world. At the same time, a number of corporations and companies continue to reward their directors and chief executives with pay packets that are justifiably regarded as obscene.
It is therefore understandable that such factors result in anger and bitterness among lower-paid workers and the unemployed. And there is every indication that things are getting worse.
The collapse in the exchange rate value of the rand, for example, is already being felt in the rise in fuel prices that will have a knock-on effect throughout the economy.
If history is anything to go by, this situation will again see the country moving towards a period of higher interest rates. And this will almost certainly force more citizens into the ranks of the 10 million who already have what are politely referred to as “impaired credit records”.
It is not as if there is anything new in this situation. A decade ago, with concern being expressed that the poor were carrying a disproportionate debt burden, the government started debating the National Credit Act (NCA) that came into force seven years ago.
Good intentions, bad consequences
It is a good example of how actions based on the best of intentions can backfire.
In the first place, the NCA made it more difficult for lower-paid workers to access credit. The legislation also restricted the rate of interest that may be levied on “microloans” (those under R8 000) to 5% a month. But this is equal to 60% a year - and does not take account of administrative fees and other legal “add-ons”.
To ensure payment, some lenders have also demanded - and been given - the right to have debt repayments made directly from an employee’s wages. Many of these “garnishee orders” have been shown to be illegal, both in terms of not having been approved the courts and to have included interest payments beyond the NCA limits.
Once again it is the army of the working poor who are the main sufferers and, as was recently revealed, many of them are miners. But it is not only a lack of financial education that leads workers into signing away more than they legally should; desperation is more than sufficient.
However, there are millions of South Africans who cannot - or do not know how to - access already exorbitantly priced loans from legitimate sources. Their only recourse is to the mashonisas, the township loansharks whose interest rates and methods of debt collection can only be described as brutal.
Because many workers often require relatively small loans for short periods, employees in a few workplaces have operated on the stokvel principle, putting money into a common “pot” that can be drawn on by those in need of a loan until payday.
It is a practice the unions could have adopted, but never did, so opening the door to “payday lenders” such as British-based Wonga.
Wonga adheres to the NCA, providing loans of up to R2 500 for 30 days or less. But a R2 500 loan over 30 days costs R541.96.
Because administrative and other fees added to the legal 60% pa interest rate remain the same no matter the size or term of the loan, a lesser amount over a shorter period results in much higher repayments. For example, to settle a R100 loan over seven days costs R176.10.
There is obviously great demand for payday loans and Wonga is extremely profitable. Here is a clear lesson for the labour movement: surely its billions of rands in investment funds would be better - and profitably - used in providing reasonably priced loans to members rather than going to investment companies that, to use union terminolog, rely on the exploitation of other workers.
- Fin24
* Terry Bell is an independent political, economic and labour analyst. Views expressed are his own. Follow him on twitter @telbelsa
