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Credit and debt: Problems In Accessing and dealing with it

Ina Wilken- 2007 -

- South African National Consumer Union -

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Introduction: A multi-tentacle creature?

• Bills and Regulations

• Managing Credit and Debt:– FSB– NCA– CPA– Debt Collector’s Council

• Over indebtedness

• 11 Official languages

• 37 Government Departments

• Illiteracy. . .

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• Credit market > R700 billion/year

• Involves 14 million consumers and

• 4 000 credit providers

• ± 300 000 over-indebted 700 000 debt stressed

• Overdrafts rising 32%, credit cards 188%, leases 289%,installment sales 138%

• After increasing by 25% in June 2007, private sector credit extension slowed to 23,1% in July 2007.

• Mortgage Advances increased from R295b to R793,1b between 2001 and August 2007

South African Background

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Disbursements: Quarter ending February ‘07

Total Disbursemen

ts

% of Industry by value

Number of loans

disbursed

% of Industry

by number

Total for Industry

$1,262,672,576

100.0% 4,810,858 100.00%

Banks $504,920,800 40.0% 1,198,068 24.90%

Public Companies

$3,371,115 0.3% 41,404 0.86%

Private Companies

$552,556,405 43.8% 1,849,989 38.45%

Close Corporations

$172,865,174 13.7% 1,557,136 32.37%

Trusts $10,139,383 0.8% 119,667 2.49%

Co-Operatives $10,404,721 0.8% 19,700 0.41%

Section 21 Companies

$8,414,979 0.7% 24,894 0.52%

NCR Industry Statistics

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• Enacted 1st June 2007

• Aims to protect the consumer from being granted credit recklessly, and the creation of a fair and non-discriminatory credit market.

• The National Credit Regulator: responsibility for the enforcement of the Act

• The National Consumer Tribunal: conducts hearings into related complaints

• Applies to all credit products where payment is deferred and where interest or fee is payable: overdrafts, credit cards, installment agreements, leases, secured loans and credit guarantees.

• Unfortunately one of the side effects is that the majority of South Africans, already struggling under resent economic climate, are unable to get credit

• Example: decline rate for home loans up to 60% per year!

The National Credit Act

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The National Credit Act and

• Before any credit provider lends money, it must do a thorough check to see whether the client will be able to afford the loan.• If he isn’t, and the client fails to pay back the loan, this could be regarded as “reckless credit” and written off

i) Borrowers:

ii) Lenders:

• If you’re in the business of lending, pawning or selling goods on hire-purchase-type arrangements, the NCA will heavily affect your business.• If you run an ordinary business that allows some customers to pay at the end of the month or sometime after they receive the invoice, you will be mildly affected.• You then needn’t register at the National Credit Regulator, nor do you have to do affordability checks on your customers.

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Structure for recourse in South Africa

www.finmarktrust.org.za

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The Consumer Protection Bill

• The consumer

• The Supplier

• Transaction

• Service Agreement

• Goods

• Services

• Key provisions

Defining:

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SA Black Living Standard Measure

• LSM1: Rural; income < R1 000/month (poorest group)

• LSM10: Urban; well-educated; income up to R19 000pm(richest)

• LSM5/6: Fastest-growing (R2 500 - R4 000pm); young women

• LSM5/6: 3 million; collective buying power R160-billion per year

• Bappies: “Booming, Aspirational and Previously Poor” – SA’sbiggest economic wave yet. Mostly Black, young,single, females (1,09 million; falling in LSM5 group)

(Consumers: Range LSM1 – LSM10)

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• Buppies: “Black Upwardly Mobile Professionals”; Black elite since the 90’s

• BAPPIES + BUPPIES = 27% of population! Spending power

of R70b/year – almost 40% of entire bottom half of SA

economy!

• “BLACK DIAMONDS”: 322 000 in 2006, increasing to 2,5m

in 2007! Average income R5 000 – R12 000/m. Buying power

of R180b!

• NB! “Black Diamonds” are not really making it! A mere 300 000 can afford it! (paying mortgages, car installments, school fees, traveling, golf, eating out – incomes >R12 000)

SA Black Living Standard Measure

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Income Profile: LSM1 – LSM9

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LSM Spending Profile

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LSM Banking Profile

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Educating SANCU’s “self-help approach”

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The “Water Tank” Diagram

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i) Calculate your income

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ii) Fixed Payments

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iii) Variable Payments

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iv) Discretionary Payments

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v) Your personal Budget Sheet

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Five easy steps to personal financial empowerment (i)

[1] Be your own business and make profit

• Income• Costs• Profit / Loss

[2] Ideas on maximizing profits

• Increase income• Controlling and reducing costs

[3] Preparing your own budget

• What is a budget?• Why budget?• How to budget

- The Careways Group -

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Five easy steps to personal financial empowerment (ii)

[4] Experiencing the power of savings

• What to do with your profit• Savings• Making provision for major life events

[5] The dangers of borrowing

• When to borrow• Where to borrow• What are your rights and obligations?• Already over indebted – what to do?

- The Careways Group -

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Dealing with Debt!

• Develop a Budget

• Contact your Creditors

• Dealing with Debt Collectors

• Credit Counseling

• Auto and Home Loans

• Debt Consolidation

• Bankruptcy

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Factors impinging on SA Consumers

• World-wide inflation on foodstuffs

• Imported inflation, especially oil price

• Interest rate hikes: 350 basis points since mid-2007

• Price of public utilities i.e. electricity, water, telephone services are regulated by Government – influence inflation – consumer has to accept!

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Four Credit Associations holding hands? The Banking Association of South Africa, Consumer Credit Association (CCA) Furniture Traders Association (FTA) and Micro Finance SA (MFSA)

• Representing members who provide in excess of 95% (R850b) private sector credit to consumers in SA

• Common goal: dealing with over-indebtedness in the interest of a healthy and vibrant credit market

• Financial advice to over-indebted consumers; facilitate restructuring of their debts to improve affordability; and

• Ensure that consumers can eventually fully recover from their over indebtedness, fully repay their debts and remain viable and credit worthy

borrowers.

• “Such an industry-driven voluntary mediation process could offer consumers and credit providers a potentially better, less costly deal.”

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2007 Banking Bill for low income groups

• Allows access to banking services, mainstream products and financial advice

• 2004: financial Charter

• Mzansi Bank; >3 million accounts at present

• 2006: 49% of total population “unbanked”

• Problem of access to financial services too large for commercial banks alone

• SA Micro Finance Apex Fund (Samaf): micro credit, savings, insurance and payment facilities to active poor rural households, farmers and agri-businesses. Provides loans of up to R100 000 payable over 12 months.

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Access to entrepreneurs in SA: challenges and opportunities

• Financial literacy

• Attitudes of banks

• BEE code targets

• Lack of awareness of development

finance

• Lack of financial confidence

• Lack of appropriate products

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Self-regulation by South African Banks

• Banking sector regulated by the Reserve Bank

• SARB is a private, listed company

• Measures the compliance of banks banks against international set of rules agreed in Basel, Switzerland

• Independent from Government

• SA banking sector is one of the most sophisticated sectors on the globe

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Conclusion• Government’s big effort to get

banking facilities to the non bankers must continue

• Critical counterpart to that however: ILLITERACY!

• Communicate with all bodies, NGO’s, the media and e-systems

• All Government departments and bodies (DTI; Ombudsmen; NCR; FAIS FSB; Consumer Tribunal . . .)

• All Educational and Research organizations

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Finally: Just dó it!

• Education, education, education. . .

• Educate them to read!

• Educate them what is credit, debt. . .

• Educate them what’s the problem

• Educate them how to fix it

• Educate them what to do thereafter. . .

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