New study to reveal profile of over-indebted South Africans


Cape Town – National Treasury will conduct a new study to identify the profile of over-indebted South Africans, in particular low-income earners.

At a Parliamentary briefing on August 16, Katherine Gibson, senior advisor of market conduct and financial inclusion at National Treasury, outlined the preliminary terms of reference for the study, which will inform the portfolio committee on trade and industry’s draft legislation to give effect to the Department of Trade and Industry’s (DTI) policy to provide debt relief to over-indebted consumers.

READ: Prioritise debt relief for the poorest of the poor - National Treasury 

Key questions that National Treasury wants answered in the study include:

-       the demographic profile of consumers who use unsecured credit, such as credit and store cards;

-       the financial profile of consumers who use unsecured credit;

-       the reasons why consumers access unsecured loans;

-       the repayment patterns of consumers who make use of secured credit, such as mortgages and vehicle finance;

-       typical lender behaviour.

A study that National Treasury conducted in 2013, showed that the vast majority of credit active consumers predominantly relied on costly unsecured forms of credit of which clothing accounts, unsecured personal and microloans and credit cards were most common.

Consumers who earned between R3 500 and R10 00 per month were most likely to have clothing accounts, credit at furniture stores and microloans.

The high levels of distress that were apparent at the time of the study in 2013, posed significant risk for the financial sector, National Treasury said, particularly in light of the historically high ratio of debt to disposable income.

In August 2014, African Bank Investments Limited (ABIL), the holding company of African Bank, was placed under curatorship by the SA Reserve Bank (SARB), as the unsecured lender folded under the weight of spiralling losses.

African Bank was relaunched in April 2016 with the SARB, the Public Investment Corporation and a consortium of six local banks as its new shareholders.

READ: Reserve Bank lifts lid on African Bank demise 

The investigative Myburgh report conducted to get behind the reasons why ABIL collapsed, found that African Bank had provided extensive unsecured lending and that the business of the bank was conducted negligently by not properly managing reasonably foreseeable risks such as a poor economy, competition and by aggressively growing the debtors book.

Dean Macpherson from the Democratic Alliance (DA), who serves on the portfolio committee on trade and industry, made a number of proposals that will be included in National Treasury’s study.

"This includes the immediate steps that need to be taken to provide debt relief, especially with regards to the reckless lending under African Bank of which the SARB now owns the ‘bad book’," he said. 

"It is unthinkable that debt relief has not been provided to these people as yet, who continue to pay interest on these loans to the SARB," Macpherson said.

He also recommended that all debt repayment agreements should be suspended until such time that the National Credit Regulator has concluded its final investigations into all loans undertaken by African Bank.

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