Johannesburg - For years South Africa's banks never realised
they could make money out of millions of low-paid workers, but now they can't
stop - just ask Salma.
After losing her husband and then her business, the
39-year-old mother of one is overwhelmed by a mortgage, car finance, six
unsecured loans and debt on her four credit cards.
That totals R120 000, equal to ten-and-a-half months of the
salary she earned before her business as a dance instructor all but collapsed.
"If I knew what was coming, I wouldn't have spent so much
on my cards, no chance," said Salma, who asked that she be identified only
by her first name.
"It is emotionally disabling. I stress so much that I
actually get physically ill."
After settling her ex-husband's unpaid rent and finding a
lawyer for her jailed drug-abusing brother, she punished her credit cards
buying presents for friends.
Salma is one of 6 000 South Africans who apply every month
for counselling to help handle their debts, according to the country's credit
As incomes rise across Africa, consumers in the continent's
richest country are choking on debt, thanks to high unemployment, slow economic
growth and a culture that prizes high end brands in everything from cars to
shoes. As elsewhere, Mercedes, Audi and BMW are high among the aspirational
South African household debt stands at 75% of disposable
income, according to the central bank, and experts worry it could get worse as
banks push into unsecured loans.
Until recently, unsecured lending - where loans are not backed
by collateral and therefore riskier for the bank and more expensive for the
borrower - was dominated by smaller South African lenders such as Capitec Bank
Holdings [JSE:CPI] and African Bank Investments [JSE:ABL].
After the end of apartheid nearly two decades ago, Capitec
and African Bank carved out a profitable niche by focusing on black communities
that had been ignored by bigger banks.
Now competitors Standard Bank Group [JSE:SBK], Absa Group
[JSE:ASA], FirstRand [JSE:FSR] and Nedbank Group [JSE:NED] are also looking for
a slice of the high margin business.
"Unsecured lending is quite popular because it is very
profitable for the banks," said Nondas Nicolaides, a senior analyst at
rating agency Moody's.
While banks charge margins pegged to the 9% prime rate for
loans with collateral, unsecured credit can return up to 32%. Banks can also
charge loan initiation fees, monthly service charges and credit insurance.
Consumer credit has remained weak since a recession in 2009,
but unsecured personal loans have grown rapidly. Such loans grew by 53% in the
third quarter of last year from the same period a year earlier. Mortgages, in
comparison, were up 4%.
The sharp growth in unsecured lending could be worrisome for
banks, because they may be lending to some clients who are less than
creditworthy, Pieter du Toit, the chief executive of FNB Loans, told Reuters in
"We are worried that unsecured (lending) has grown a
bit too much, but it is because people are struggling to find other ways of
His bank, the retail arm of South Africa's second-biggest
lender FirstRand, nonetheless plans to advance at least 20% more unsecured
loans this year.
While the Reserve Bank has been cautious about high debt
levels, governor Gill Marcus has said unsecured lending is still a small
component of overall credit.
Despite its relative wealth, South Africa is saddled with
the legacy of its apartheid past: millions of blacks stuck in poverty and an
official unemployment rate of about 24%.
Those with jobs often support their extended families by
paying for school fees, medical bills and even funerals, which tend to be
expensive multi-day events for South Africans.
One 43-year-old mother of three said she can no longer
afford to service loans totaling R25 000 after losing her R2 300 a month job
stacking shelves for a food company.
"All I want is help to pay this because I am not
working any more now," she said in Diepkloof, Soweto, where the National
Credit Regulator had pitched camp to educate residents on debtor rights.
Experts say that some of South Africa's poor, traditionally
excluded from the financial system, may not understand the dangers of high
interest or the details of their loans before taking on debt.
The Soweto mother, for example, was not made aware whether
or not her loans were insured against a job loss.
Some debtors hold as many as 13 credit accounts. Even with
10 credit bureaux in South Africa, the highly indebted still manage to get new
loans due to lax background checks.
'Debt is colour blind'
The debt crisis has inspired a reality show on South African
television. On the national broadcaster's In Debt programme, "debt
doctor" Thoko Nchabaleng, a registered debt counsellor, doles out advice
on avoiding excessive borrowing.
In one episode she tells guest William Ramotsela - his
extended family's sole breadwinner - to cut back remittances to his relatives
With two children of his own, Ramotsela also had to support
his parents, five sisters and their six children. He had six personal loans,
two credit cards and a home loan to service, which left him R15 000 short each
The problem is also spreading to wealthier South Africans
due to a growing culture of consumption, Nchabaleng said.
"It's about keeping up with the Kunenes," she
said, a reference to the well-known ex-convict turned entrepreneur famous for
champagne parties and eating sushi off bikini-clad women.
"Debt is colour blind. Whether you are black or Indian,
you look at your peers and how they live and you want to live like them,"
said Nchabaleng in an interview with Reuters at Johannesburg's upscale Sandton
City mall, as bag-laden shoppers walked in and out of high end boutiques.
Higher-income debtors are the hardest to reform, said Nomsa
Motshegare, the acting head of the National Credit Regulator, as they don't
want to give up their expensive lifestyles.
"We find that a lot of the people who are over-indebted
are people with two houses, two cars. They drive the BMWs, the Mercedes. Those
are the guys who don't sleep at night, trust me."
'Buries you under'
Those who have tapped out formal credit lines turn to
"mashonisas", the illegal loan sharks who first sprang up during the
apartheid era when blacks did not have access to credit.
Their services are still popular, despite their often
violent means of collection.
Some mashonisas - which in Zulu translates to "one who
buries you under" - confiscate debtors' ATM cards and only give them back
after withdrawing their cut at the end of the month.
Lucky borrowers have lost their furniture to mashonisas,
while the less fortunate end up as victims of violence.
Not all mashonisas cut the typical image of a loan shark.
Nobuhle, a petite 43-year-old woman in a short flowery sundress, is chatty and
friendly but admits she can be tough on her customers.
The mother of one lends up to R1 000 and expects settlement
with 50% interest seven days after the next payday.
Those late in repaying, usually a month after the money was
due, are forced to pay double.
"They don't give up borrowing. They like cash,"
she said, rubbing her thumb and index fingers together. "So far, business
has been very good. I would be lying if I said business is bad."
Nobuhle already has 15 repeat clients and is making double
what she earned working in retail.
Would she use violent means against defaulting debtors? She
won't say, although she will do "everything" to get her money back.
Nchabaleng, the debt doctor, said mashonisas are not the
only ones making a killing.
"We are fighting an ill practice where retail is
cashing in, banks and unscrupulous lenders are cashing in," she said.
"Anyone that can take a chance is cashing in on the
fact that people are now used to living with plastic money. It's life. But I
can tell you that they are dying inside."