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SA workers trapped in debt hell

Microlenders are exploiting the financial illiteracy of workers by offering them loans they cannot afford.

JOHANNESBURG – As much as 40% of the income earned by SA’s workforce is being directed towards the repayment of debt.

This is according to calculations performed by consultancy Eighty-20 and based on information provided by the Credit Bureau.

The figure is reached through a comparison of the estimated monthly remuneration of debtors earning a gross monthly salary of between R3 500 and R10 000 as against their estimated monthly debt financing costs.

“It looks like pretty much anyone who has access to credit is using it and it looks like they are pretty much maxed out … if you are using it, it looks like the reason you haven’t got more is because lenders won’t give you anymore,” says Illana Melzer, Co-founder of Eighty-20.

The R3 500-R10 000 income bracket “is a market that doesn’t have mortgages and doesn’t have car finance so that is primarily retail and unsecured lending”, she says.

According to a report released by information solutions firm Xpert Decision Systems (XDS), 30% of borrowers in the R3 500-R10 000 income bracket spend at least half their income repaying debt.

Unsecured lending is the most expensive form of debt attracting annual interest charges in the region of 60% per annum, the maximum allowed by the National Credit Regulator (NCR).

A growing body of evidence has begun to point to the possibility that high levels of indebtedness was one of the catalysts in the recent strike action to have engulfed SA’s platinum sector.

According to a debt consultant, known to Moneyweb which was employed by some of SA’s major platinum mines and is working on-the-ground with miners on the platinum belt, micro-lenders have been exploiting the financial illiteracy of workers by offering them loans they cannot afford.

The practice has led to pandemic levels of indebtedness on the platinum belt with a host of miners being sucked into irrecoverable debt spirals.

This view is supported by the head of the Law Society of the Northern Provinces, Jan van Rensburg, as well as other experts spoken to by Moneyweb.

Said the consultant “I strongly believe” that a spiralling indebtedness on the platinum belt has motivated the strike action.

“This (the strike action) is purely a financial issue … it’s a financial stress related issue, it’s not political.”

An on-going Moneyweb investigation has revealed instances where collection attorneys have charged workers over ten times the amount of their loan for the recovery of debt in the event of default.

Instances of fraudulent or inflated garnishee orders have also been reported to Moneyweb.

Questions have been raised regarding the National Credit Regulator’s role in allowing the unsecured lending market to abuse workers while allowing exorbitant interest charges to be levelled.

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