Cape Town – Consumers’ ability to service their debts is the lowest it has ever been, according to Prof. Bernadene de Clercq of Unisa’s Bureau of Market Research.
Consumers are on the brink in terms of strain on their incomes, she warned at the release of the latest MBD Consumer Financial Vulnerability Index (CFVI) on Wednesday. The CFVI is already in its 20th year.
“The impact of the interest rate hike earlier this year was a reality check for SA consumers,” she said.
“Consumers always divorced themselves from their responsibility regarding debt. But suddenly, with the interest rate hike, consumers started feeling they cannot maintain their debt servicing costs.”
Debt servicing is, therefore, under immense pressure.
“The interest rate hike by the SA Reserve Bank (Sarb) won’t bring down inflation as it is not demand driven,” said Carl de Villiers, chief revenue officer of MBD, a provider of credit management solutions, said at the event.
Since consumers now have to use a larger part of their income to repay their debt, their expenditure is under more and more pressure.
“One of our biggest concerns is that there will be further increases in the repo rate,” said De Clercq. “We foresee another 50 basis points increase sometime this year and that will bring severe hardships, especially for low income earners.”
This in turn places the retail sector under huge pressure.
“I heard a big retailer say it costs his company about R4m per month in e-tolls for delivery trucks taking food to its stores. The retailer cannot absorb this extra cost,” warned De Clercq.
She warned that there could be a lot of unintended consequences because of credit restrictions on consumers.
“We are not in favour of reckless lending, but there must be a collective effort to see how these struggling consumers can be helped,” she said.
She would rather like to see a joint effort by the government, companies and credit providers to find a solutions “out of the box”.
These could include entrepreneurial training, financial literacy education and even a tax incentive to employ people like domestic workers.