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Five million South Africans drowning in debt

FinScope report shows more people are banking.

PRETORIA – About five million South Africans are battling with over-indebtedness, the FinScope South Africa 2013 financial survey shows. That is almost 14% of the total number of South Africans older than 16.

The report, released by FinMark Trust in Sandton on Tuesday also shows a marked increase in the number of South African adults who utilise banking services and a bigger uptake on insurance, especially life and vehicle cover. FinMark says access to and usage of quality and affordable financial services play an important role in reducing poverty and inequality.

While fewer people are shown to be saving, those who do are taking up additional products. Fifty-eight percent said they are not saving at all.

Presenting the findings on behalf of TNS, which conducted the survey, Rob Powell (pictured) said while the majority of adult South Africans have cell phones, cell phone banking is not yet widely supported. Those who do make use of it, mostly limit their use to buying airtime.

He says there is a huge opportunity for banks to use cell phones not only to provide banking services, but also to communicate with clients and further reduce exclusion from banking services.

The number of people with formal credit or loans has increased by 1.1 million a year ago, to 14.2 million. There seems to have been a shift away from informal lending, since fewer people borrowed from informal sources like money-lenders and pawn shops. Powell ascribed the shift to lower costs in the formal sector and possibly a better customer experience.

Secured loans grew substantially, but were overshadowed by the doubling of the number of people with unsecured loans. Powell said the growth in secured loans includes a small increase in bonds, but is mostly driven by increased car sales. See graphic below:

Source: FinScope SA 2013

Unsecured lending is aimed at building and improving lenders’ homes (36%) and for education (11%). It is however of concern that 19% of the lenders indicated that they borrow money to pay bills, monthly fees or unexpected personal expenses.

He said more than a third of the credit active population shows signs of over-indebtedness like applying to reschedule debt, considering seeking help with their debt, considering cancelling policies to pay back debt, are in arrears with payments or have been garnisheed. The troubled consumers tend to borrow from multiple sources, including the informal sector. He said the majority of ‘troubled consumers’ includes women older than 30 who typically earn a salary and get income from their husbands. “They have credit all over the place”.

Greater financial inclusion was driven by organic growth and the government’s social grant system that has been rolled out, paying money into bank accounts. The money can be accessed with a MasterCard that has been issued to the grant recipient. They can use the card for payments or to withdraw the money at a variety of retail shops.

Powell said many grant recipients still only use their banking cards to withdraw their whole grant once a month and prefer cash. “They believe that if they leave money in the account, government will think they have money and stop paying the grant.” He called for increased financial education in this regard in order to facilitate the use of more banking products by these customers.

All in all, it seems as if there is a lot of action in the space of adults earning between R3 000 and R7 999 per month, Powell said. That group has grown from 2.3 million a year ago, to 4.2 million in 2013, as the lower income groups shrink. They use more credit, but also save more.

Contributions to provident funds in this income bracket have grown from 22% a year ago to 27%.

The number of members in this group with education policies has grown dramatically from 119 000 to 387 000 over a year. The number of these individuals with overall savings has increased from 171 000 to 586 000.

These customers engage more with banks and want to know which products are available to help them manage their finances, said Powell.



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