According to the National Credit Regulator (NRC), there are 27.46 million credit-active South Africans that have R2.37 trillion in debt from registered financial services providers.
1. This is an unsustainable position for South Africans and for our financial institutions as people are increasingly unable to pay back these loans. In the numbers contained below, we have a deeper look into the number of people with jobs and the number of loans and compare how they stack up. We are obviously all in favour of financial inclusiveness and access to all in the financial sector, but responsibility for a prudent approach lies in the first instance with the informed financial institutions that deal with a less-informed client. Yet we have many acts and regulations in place and our Reserve Bank is always quick to point out the stable position of our institutions.
The Financial Sector Conduct Authority (FSCA) is the market conduct regulator for financial institutions in South Africa. It oversees banks, insurers, retirement funds, administrators, and market infrastructures. The FSCA’s mission is to enhance financial market integrity, protect customers, and promote fair treatment by financial institutions. Their vision is an efficient financial sector where customers are informed and treated fair.
2. Mountain of debt
In this article, we look at the debt of the country in the private sector only. One must obviously add the public debt to this number to get the full picture. Gross debt stock is expected to increase from R5.21 trillion (73.9% of GDP) in 2023/24 to R6.29 trillion in 2026/27 (74.7% of GDP) The country as a whole carries a gigantic total debt of R7.58 trillion. The Reserve Bank has raised interest rates constantly and the whole country has been forced into a slow and painful survival mode.
3. Number of employed people
One would assume that the number of loans at any given point in time will be closely related to the number of people who have an income that could support the repayment of loans. However, this correlation is well disguised.
The non-economic active component consists of students, discouraged work seekers, home-makers, those too old/or young to work, disabled or sick workers, and a category named other.
Approximately 3.6 million (35.5%) out of 10.3 million young people aged 15 to 24 years were not in employment, education or training (Neet).
4. Based on statistics, the formal sector plus the agricultural sector comprise 11 500 000 jobs. If we add another 1 200 000 domestic worker jobs (even exceeding the jobs in the agricultural sector) we are at 12.7 m jobs. The informal sector accounts for 3.1m jobs. With a total population of 62 000 000, we know we should be worried and not just Sars. Policies that discourage taxpayers must not be taken lightly, whether it is to stay tax obedient or from the finding a better place to apply their trade.
A point to consider is the fact that doctors are the highest-paid earners and taxpayers, and their skills are keenly accepted anywhere in the world. The National Health Bill’s implications must be professionally researched as adverse consequences can be ill-afforded by the fiscus. The public debt which far exceeds private debt can only be repaid by taxing those that have jobs and are also repaying their personal debt. There is therefore only one real source from which debt can be repaid, private taxes, company taxes, and other taxes which the government places on an already overburdened economy.
5. A credit agreement is considered reckless under the National Credit Act (NCA) in South Africa if the lender fails to check affordability before granting a loan or lends it to someone who cannot afford it. Additionally, lending to someone already over-indebted is also considered reckless. If you suspect reckless lending, you have rights: a court can suspend the loan temporarily or even cancel your entire debt obligation.
Emolument attachment orders (EAOs), more widely known as garnishee orders, came under fire recently in the Western Cape High Court. Creditors have been getting garnishee orders issued by court clerks (and not magistrates) and they have often gone to courts hundreds of kilometres from where the debtors live. There is no requirement that the clerk of the court should review how the garnishee order would affect the economic circumstances of the debtor. The decision prompted a judgment by the Constitutional Court requiring judicial oversight when issuing these emolument attachment orders – meaning these orders can only be issued by magistrates rather than clerks. To correct past mistakes, protecting the consumer allows the debtors to defend themselves and oppose the order at a higher level.
Garnishee orders have an enormous impact on the flow of reckless lending, these orders allowed funds to be recouped by creditors while the debtors were unable to sustain themselves and their families. This is a huge problem in the financial world of South Africa, and it is beyond sad that “respected” institutions such as Capitec is found wanting in this regard. With many cases becoming known, it would seem these dark practices of banks have led to the chickens coming home to roost as many cases are now slowly being unveiled as one of the thorns in the side of the impoverished. In the latest reported Capitec Bank case, the debtor was Mr Dipholony Phefo, who was a yard supervisor at Prasa Metrorail in Braamfontein, Johannesburg, and he lived in Dobsonville, Soweto. He defaulted on two separate Capitec loans in 2011 which left him with concurrent garnishee deductions from his salary of R900 and R1 200 – in each case with interest of 15.5%. The orders were allegedly procured using both most common tricks employed by the sector: they were procured at the Kempton Park Magistrate’s Court rather than one where Phefo’s home or job fell under.
Our banks have eloquent words in their annual reports and statements regarding their mission and vision and the principles and values they uphold. In practice, the reality experienced by vulnerable clients is a lot different. The Government of National Unity’s policies need to look after the well-being of the goose that lays the eggs, while also helping the poorest of the poor survive another year.
*Kruger is an independent analyst.
** The views expressed do not necessarily reflect the views of IOL or Independent Media.
PERSONAL FINANCE