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Johannesburg - The disaster at African Bank could - to some extent - have been avoided if it relied less on cash repayments of loans and went the debit order route instead, according to Fred Steffers, managing director of debit order processing company PS&S.
He said going the cash route compelled the bank to set up and maintain a large number of branches country-wide, which was expensive.
More importantly, once consumers had been paid, servicing their unsecured loans was often very low on their list of priorities, in his view.
“It is possible for lenders to structure a debit order in such a manner that it is debited the moment a consumer’s salary has been paid, thus avoiding the pitfall of him or her going on a spending spree and then ending up not servicing their outstanding debt," said Steffers.
"This was the main reason why African Bank ended up under administration.”
In his view other reasons for the problems at African Bank included reckless lending, which means that it lent money to persons who were already over indebted.
The National Credit Regulator (NCR) found the bank guilty of reckless lending at 25 of its branches countrywide, according to a spokesperson for the regulator.
Steffers said it was important to bring the millions of South Africans, who were still unbanked, into the banking realm.
“As we have seen time and time again, people are killed because they carry large sums of money around with them," he said.
“There have been several instances where business owners had been followed from banks where they had withdrawn substantial sums of cash to pay their employees and had then been brutally murdered by robbers who made off with the money.”
Steffers said employers should be encouraging their employees to open bank accounts so that they can be paid by debit order and thus avoid the pitfalls of handling cash.
"Thanks to new players in the banking industry like Capitec [JSE:CPI], it has become eminently affordable for even the lowliest paid employee to open a bank account," said Steffers.
“We know from our own experience that workers are often robbed on trains and buses by thugs who lie in wait for them on payday. On trains, they are often thrown out of the moving coaches ending up dead because they carried cash.”
- Fin24
