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Percy_Makholwa
 
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Debt counselling not useful

11 July 2014, 15:00

National Credit Act needs review just like the IMF- it not working!!!

 The usage of borrowed monies is in part justifiable when well used and unjustifiable when you have spent and have not invested in something beneficial for your future.  The issue of debt is therefore a janus-faced reality on the positive part monies could used to create investment seen in purchases of property, starting a business and education; on the other part there could be spending that is actually a disinvestment, wasteful and reckless-which is never a good idea when it concerns borrowed money.

The less wise spender would then rely on happenstance, evidenced in the hope that there could be an amnesty and wipe out of debt. The same reliance on amnesty has been seen in the African case-in the same vain states in Africa have borrowed from the IMF group and ended up relying on hope for the West to erase the continent’s debt.

The problem is when individuals have no maneuverability out of the debt trap, investment gurus easily dismissing hopes of quick reprieve by saying that the indebted will stay trapped for a long time (10 to 20 years).   Hope is quickly dismissed and therefore action is discouraged- and the person is either placed in some demeaning debt counseling show on television, where some loud mouthed, otherwise vitriolic presenter would embarrass persons writing to their show.

In the same way that careers have created on a “lets embarrass the debt ridden developing world” agenda and so-called economists and heads of research will over-state their case on Africa needing austerity and a state resizing/ row back and downsizing.  The recipients of economist and debt counselor/ tv commentator have the option of structural adjustment for nations and debt counceling for individuals.

 Both options are undesirable because they are not rehabilitative but are an opportunity to milk the debtor over a protracted time, while giving no real solution. But as in some  third world countries (Madagascar and Malawi under Mutarika the late) options beyond austerity were followed, and this bravery was partly a success - so also it is possible to come out the debt counseling grave. Debt counseling like structural adjustment is a grave and a further step from the whole (debt), it is also a bad idea. .

The above means that  the South African government needs to actually scrap the debt counseling intervention in the National Credit Act, and enable debtor to pay and guide them never again to borrow fruitlessly. This also means- that while the interventions of the South African Department of Trade and Industry have created hype over payment records needing to be wiped clean- it would help if there was a review of the National Credit Act to assess impact.

I believe government would find that most of the debt counseling clients actually need guidance on what kind of credit they should assume. Indebted south Africans need a new and responsibility imposing money lending regime that says: firstly, if one is working and is assured of a pension – they need to have their debts from unsecured loans being incorporated into a secured loan like a mortgage. While being prohibited or disenabled from accessing unsecured loans ever again- through making reckless lending illegal;

 Secondly, the above needs group to be given preferential loans to start a business, get a house and have the option of a vehicle under the mortgage. This way they access housing finance  and consolidate their debts.

Thirdly in order to stop the pre- American credit crisis madness in property, government should (a) strictly regulate that debt will not be resold or speculated on; (b)  ensure the creation of the means (see the second point) and ensure that South Africans live within those means by restricting debt beyond the concessions of 1 and 2 above.

 Admittedly, the above is simplistic but it is premised on three principles (1)  reckless lending should have never been allowed in the first place and the present situation only punishes or convinces the borrowers of their folly but is not really changing anything ( the includes the payments and the provisos of the NCR); (2) paying back a mortgage is cheaper than paying back all other debts and it is also a reasonable debt that leaves you better off. It also adds to the supply and demand of reasonable and worthy assets, thus there is an enablement of a supply that feeds reasonable demand; (3)   this intervention would allow present citizens to actually invest in the future than continue stealing from that future of their children.  

 The acceptance or non acceptance of this proposal should go beyond what makes sense ideologically.  The right would say this is absolute nonsense, and oversimplification by a novice in political economy since the government should never meddle in the economy and mess with the forces of the free market and individual business endeavours of your African banks for instance  and the beneficiaries of unsecured loans ( the lenders).   The left would say this intervention is not good enough (it fails to wipe off debt) and is a poor example of the reformist gains that would enable wealth transfer.

 The argument that goes beyond all ideology says- the South Africans that have good credit scores, property and are able to start business are in the minority especially among the black population- we need to create more. The perpetual condition of indebtedness says debtors will be a burden to the minority (stable individual) since they spend less on health and education which would allow us to create a significant skilled and taxable population now and into the future.

This means that the dependency on the few tax payers, reasonable spenders and business person is likely to increase in the form of tax that should subsidize the indebted because the indebted are increasingly cancelling medical aid to survive-which says they will soon queue up in tax funded public hospitals.   The indebted are unable to pay for school fees, which means more people on tax funded NSFAS.

 In sum, it simply makes sense to revoke the clauses of the National credit act that prohibit access to all debt. The National Credit Act needs clauses that prohibit future unsecured lending but also makes arrangement for people to transition out of that hole, that way people learn to choose right and banks get their ill gotten profits from unsecured loans.  As for these economists and commentators who talk about living within your means- the question is what living and what means?  Lastly, the question of saving comes up- well perhaps when people are allowed out of debt, it should also be a necessity that they have life, retirement and hospital plans.

Percy Makholwa 

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