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SA’s unsecured loan boom leaves 40% of borrowers in default

Nearly 8m South Africans have taken out a combined R225bn of loans without collateral.
South Africa eased controls on unsecured lending in 2007 to boost financial inclusion. Image: Bloomberg

South Africa’s unsecured lending boom has left 40% of borrowers in default and millions of people in a debt trap, according to fund manager Differential Capital.

About 7.8 million of the country’s 60 million residents have taken out a combined R225 billion of loans without collateral, mostly for short-term needs such as furniture and urgent family care, the Johannesburg-based firm said in a report.

South Africa eased controls on unsecured lending in 2007 to boost financial inclusion in one of the world’s most unequal nations. Faced with growing criticism, the industry has battled to improve its reputation even as regulation has improved. Instead of helping those most in need, the practice has led a consumption-driven debt boom by those least able to pay back loans, according to Differential Capital.

“It is a dysfunctional industry where lenders compete on the largest loan size, not on customer value, preying on financial illiteracy and consumer demand for credit,” the report said. “Reckless lending is almost systemic in the industry.”

‘Extortionate pricing’

Even with the high number of defaults, the industry stays profitable by charging “extortionate pricing” and rescheduling loans that are in default, according to the Differential Capital report.

President Cyril Ramaphosa in August signed the National Credit Amendment Bill into law, setting the groundwork for over-indebted consumers to have payments suspended, in part or full, for as long as 24 months, or even scrapped if their financial situation has been found to have worsened. The bill applies to customers who earn a gross monthly income of no more than R7 500, have unsecured debt amounting to R50 000, or who have been found to be critically indebted by the National Credit Regulator.

Interest charges, once all associated costs are included, range from an annual rate of 225% for one-month loans to 34% for five-year loans. Two-thirds of customers pay more than a quarter of their net income to service their loans, the report said.

Biggest lenders

Capitec Bank is South Africa’s biggest unsecured lender. While the country’s big four – Standard Bank Group, Nedbank Group, Absa Group and First National Bank – also offer unsecured loans, their affordability tests are more stringent, it said.

The South African Reserve Bank, which oversees banks, declined to comment.

“The industry has changed enormously over the last couple of years due to regulations,” said Capitec chief executive officer Gerrie Fourie. “The big players like ourselves have moved out of the lower sector and the slack has been taken up by the smaller shops. The biggest portion of the market complies.”

Although the number of loan defaults is high, it has come down in recent years, Fourie said. Capitec focuses more on longer-term debt with between 60% and 70% of the money it has lent out used for needs such as education, vehicles and establishing businesses, he said.

Indebted miners

South Africa’s mining sector has been particularly hard hit. Two-thirds of the industry’s 450 000 workers have had unsecured loans and spend an average of 48% of their wages paying off debt, Differential said.

In 2012, the extreme indebtedness of miners was seen as one of the root causes for violent labor unrest that culminated in the massacre of 34 strikers at Marikana. In 2014, African Bank Investments, the biggest unsecured lender, went bankrupt. Last year, Net 1 UEPS Technologies was censured for allowing loan repayments to be taken directly out of welfare checks.

Read: SA’s debt collection practices await investigation

“In South Africa, financial inclusion through micro-credit has become financial enslavement through debt traps,” Differential said. “Expensive loans used for consumption purposes create a transfer of wealth from the borrower to the lender – in South Africa’s case from the poor to the rich.”

© 2019 Bloomberg L.P.


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Since when does Capitec do loans to start businesses? It sounds seriously suspect.
Thanks to Differential Capital for shining the light on this sick industry. 225% interest must be illegal – it can’t be legal. Where is the National Credit Regulator – what oversight does it do!

Capitec would have seen a gap in the market, to advance start-up capital, because the other banks have been wary to do this. I don’t think that there is anything suspect about this.

225% interest may well be illegal; it would be good if examples were given.

It appears from this report that despite the huge bureaucracy, cost and admin of the National Credit Act, the situation is as bad as it ever was.

Certainly difficult to figure out what difference the NCR is making to exploitative loan shark practices.

So, you are happy with the report in this comment, but below, you show that you clearly have not even seen it? What is going on here?

In Jan this year the repo rate remains unchanged at 6.75% and for mortgage agreements, the maximum interest rate credit providers can charge a consumer is 18.75% per annum.

Credit facilities, which include credit cards, overdrafts and petrol cards, are 20.75% per annum; unsecured credit transactions, which consist mainly of personal loans, are 27.75% per annum, and developmental credit agreements are 33.75% per annum.

Either way 225% PA is clearly in conflict with the Usury Act – now the National Credit Act – and by all accounts will tie you to an ever increasing debt till eternity!

The Differential Capital report is a one pager without any references or sources.

Still not convinced by the allegation of 225% interest rates.

It can be a R500 loan for a month for all we know.

David Brent, the report is actually 48 pages long and cites a number of academic studies and sources. Not sure which report you are reading.

Somewhere along the line someone has realized that it is not the pay that is to little but, surprise, the reckless lending that is to high.

No loans for assets, just plain loan-shark business in behind brightly colored company logos.

The abuse of the poor an uneducated through the high interest loans will come to be theft or sale of narcotics like cigarettes 50 years later

How about universal zero interest small loans by the state

“universal zero interest small loans by the state”

Paid for by…?
Are you aware that “the state” (read ANC-in-government) is seriously bankrupt and that such a scheme will go the way of SASSA?

The incapable and vulnerable should not be abandoned by society, but what is required is a universal income grant (less open to abuse & looting) coupled with fixing the Education System to produce employable, productive and financially literate citizens.

Well everybody is aware of the state of SA’s gov, yet not having competent state and civilians does not legitimize the existence and tolerance of payday/loan-sharks.

Lending unsecured small loans at exuberant “admin cost” can best be a function of the state. The state has the lowest cost of capital.

@ casinegro the state = the tax payer. So on top of funding education, safety and security, the civil service, the social safety net of social grants and in future NHI, you want the tax payer to fund zero interest loans to people as well.

I have a lot of sympathy for poor people and I do believe it is the obligation of the more fortunate to provide means for the poor to escape poverty as well as a safety net for the vulnerable members of our society but there are limits. Their seems to a view that the “state” has access to untold sources of funds. We are for all intents and puproses bankrupt yet you want the state to spend more money? The state has showed itself to be utterly incompetent to organise the proverbial “ up in a brewery” yet you want to entrust more money to the self same lot that has given us the bottomless pits of Eskom, SABC, SAA etc etc.

No my friend, put down your copy of Das Kapital and be realistic for a change.


nope sorry lending to the poor needs some serious rethink.

The financial system is filled with middle men and conmen that are just parasites on the real economy.

Unsecured lending that takes from the poor to the benefit of a few is one of them.

It would be nice if lenders would be compelled to show the REAL interest paid on the loan which would include all costs, including all fees and insurance. Lot of countries have such law in place.

i think i will go back to smoking, adultery and tax fraud, as the penalty for these sins still puts me way behind this sick industry in the #q2hell

” Sixty-million South Africans have taken out a combined R225bn of loans without collateral.”

The entire population is supposedly under 60 million, including those who aren’t old enough to take out loans, and then you need to also remove from that figure those who are not South African.

Could the article mentioning ’60 million South Africans’ (when our population is only 58 million), possibly be referring to duplicate loans by single persons?

Why not just read said article instead of mindless speculating? Multiple loans are a certainty as explained by the study. But there are still way less loans than people.

You read this incorrectly. The article states the following:
“About 7.8 million of the country’s 60 million residents have taken out a combined R225 billion of loans without collateral,”

The results of public schooling in SA and a mentality of talking without thinking or reading is graphically illustrated by your comment. But hey! You almost impressed us by spotting an a ‘mistake’ in a news article!

I don’t understand, the Banks have done this for years, why is it suddenly a problem now? It’s been disclosed and the AFS show it for more than a decade. Is it that we’ll see earnings coming under pressure that’s the trigger?

Short Capitec -Vice Roy report might still come back to haunt them!

Hmmm – the viceroy report certainly DID warn the bank was facing undue risk due to unsecured loans. But Capitec said it had started moving out of the low-income category in anticipation of bad debts. Wait and see…

“In a country well governed, poverty is something to be ashamed of. In a country badly governed, wealth is something to be ashamed of.” – Confucius.

Let us keep this wisdom in mind when we glorify poverty and crucify entrepreneurship. The law is not there to protect individuals against themselves. A truly free-market structure is quick to provide the best service at the lowest price. Nobody forces people into debt or to pay high rates of interest. They do so willingly and eagerly. What is the value of human rights and personal freedom if people do not have the right to make mistakes by taking on too much credit? Who of us do not make mistakes regularly?

The penalty of default and bankruptcy is the mechanism that punishes reckless lenders. If the lender does business with the wrong person and miscalculates his risk profile, the market will punish that business with bankruptcy, as it did with African Bank.

Nobody feels any pity for shareholders of African Bank whose capital was “redistributed” among the borrowers who never repaid their loans. The owners of African Bank, the shareholders, made “donations” to unsecured borrowers.

The voters themselves, through their political power, put pressure on banks to “make banking accessible to the masses”. In the marketplace, everything has a price, and now, payment is due.


A “world saved by the market” view so generally provided by the idealistic and haves to the poor.

Funny but history is filled with massive bank failures that get bailed out and the cheque is left to Joe on the street to pay.

Lending can be an extension of the state, try China

A borrower uses the capital that is provided by someone else. Nobody forces this borrower to use this capital though. Everybody hates the creditors. The banking system is like the mother-in-law that supports the family. The son-in-law wishes her dead, but when she does suffer a heart attack, he is the first one to offer mouth-to-mouth resuscitation.

In reference to socialism and the Malthusian Trap, the poor would not even have been born, or be alive, if it was not for the capitalist system. The socialists and naive leftwingers fail to even recognize this fact. The poor are alive because some people are wealthy, they are not poor because some people are wealthy.

Two super comments Sensei. Spot on. Particularly the observation that the poor would not even be alive if it were not for the capitalist system.

….and as the socialists and incompetents take over fewer people are going to be around for sure. Zims life expectancy dropped to 40 something, and without South Africa to flee to, it’s population would have crashed.

Good news for the animals though. They may get some habitat back.

Geez when I want reform in one small sector of finance I get a membership to the socialist party? Hahah Sounds like very limited perspectives..

Unsecured lending to the poor needs some serious rethink by the haves. It is unfair and perpetrates a vicious circle with serious negative consequences to broad population.

No system is perfect, only idealist think one or the other is.

The poor and rich go hand in hand, Marie antoinette found out the hard way.

I should state my real, underlying concern regarding this issue. We want to protect the “poor” from financial ruin by blocking their access to loan sharks, but at the same time we allow the “poor” to cause financial harm to others, myself and every reader included, by allowing them access to the voting booth!

Those leftists and false philanthropists who honestly want to help the poor, who want to protect them from themselves and insulate them from their own mindset, should act in a consistent manner. If people cannot accept the responsibility for running their own finances, then they cannot be given the responsibility to run the country’s finances. If the individual cannot be entrusted with the right to determine his personal financial position, he cannot be entrusted with the right to vote either.

If we go ahead and determine that we protect people from loan sharks, and at the same time we also ban them from voting, I am all for it, because then we are acting in a consistent manner.

We are all responsible for our own actions.

So you are saying the bankers are going to be held responsible for their reckless lending? Dream on.

The way I understand it, you have to have assets/some sort of income, or have somebody with assets/an income willing to sign as security, before you will qualify for a loan – even an unsecured loan (yeah, go figure). That means that it is not the destitute who is being ‘helped’ by the loan sharks, but indeed people who live higher than what their income allows. If that is the case, then surely our bleeding hearts should bleed just a little bit less, when the defaulters aren’t the destitute masses they make them out to be. The bottom line is that debt will kill you. Use it sparingly and only for good reason, or face a life of serfdom, spent on repaying the ‘helpers’.

Your understanding is wrong. The clue is in the second word of the headline ‘unsecured’.

wish them quick recover.

40% default….comes to about 3-million souls.

That’s A LOT of kneecaps! Ouch!! 🙁

No doubt the Govt will force the Lenders to write off the unrepaid loans , in order to gain votes . The lenders /Banks will get Screwed !!Amandla .

Quickly take out loans and don’t repay them……

Add Zuna to the list too.

When I see how easy it is for my farm staff to go shopping at Christmas time and come back with kitchen sets or lounge suites all on HP I realise why this figure is as it is.

none of these HP’s ever get paid, the goods get moved to a brother or sister and thats it. They never had any intention of repaying the loan, it is the way of Africa. zuma had no intention of paying his loan, so whyy should my staff pay their R1200 loans

This is very sad, this bill that was signed to law by the President as well,it’s not known by the majority of those who are implemented, how is this going to be introduced, our people are really in a debt trap here..

When are the lawmakers/Treasury going to stop pandering to banks and the financial industry? Their ability to ‘create money’ out of deposits underwrites their profitability! Why then are they able to rip-off people with such high interest rates? These need to controlled at every level of financial transaction as is possible.
The poor and middle class continue to suffer the most while this industry pursues maximum profit and exploitation. Then if they are ‘too big to fail’, the Govt/Reserve bank bails them out when they do, with our money!
Their legal ability to be able to borrow money at the low ‘bank rate’ surely also underwrites their profitability.

People are not forced to borrow at high IR.

The problem is that financially illiterate people havent a clue what IR they are paying nor do they care. They just see how much they can get for “this much” per month.

This means that legitimate borrowers with collateral will be under more pressure to balance the books for the banks. Just another way of redistributing wealth to previously disadvantaged. Would watch the Banking shares in my opinion. I’m not sure if those with collateral can deliver either! This is exactly what happened in Japan – took the banks and clients years to emerge from negative interest rates…. Big interest rate decrease imminent in my opinion.

Well done to Differential Capital for taking this on despite it being a problem that does not affect their work or clients directly.

The thinking that the big banks were somehow doing it better and more responsibly than the sharks is looking weak. Also doubtful that the money is being used to grow businesses and ‘give people a hand up’ like the rose tinted adverts suggest.

End of comments.





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