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SA Taxi caps maximum interest rates on new loans at 26.5%

High funding costs and higher-risk clients lead to greater interest rates.

SA Taxi, the country’s leading financier and insurer of minibus taxis, has undertaken to cap interest rates on new loans at 26.5%.

The decision, which may exclude some aspirant minibus taxi owners/operators from qualifying for loans, follows engagement with industry stakeholders including taxi associations and government in the wake of taxi strikes.

Taxi operators embarked on protests, which brought traffic to a standstill and left commuters stranded, earlier this year against perceived steep increases in new vehicle prices as well as excessive interest rates.

In response SA Taxi, a subsidiary of financial services group Transaction Capital, reduced its maximum interest rate from 28.5% to 26.5% on future loan originations. The company reports an average interest rate on loans of 24.9%, which falls below a government cap of 34%.

Per SA Taxi, an interest rate of 24.9% results in an average monthly instalment, including finance instalments and insurance premiums, of R12 270 over 72 months.

Source: SA Taxi, H1 2017

David Hurwitz, chief executive of Transaction Capital, explained that Transaction Capital’s high interest rates are driven by relatively higher funding costs as well as the risks associated with lending to customers who are unlikely to qualify for loans from banks or classified as previously financially excluded and underbanked.

“Our interest rates are higher because we aren’t a bank so our funding costs are higher. Also, we are financing a customer that would not get finance from a bank. Nine out of ten of our customers on average would battle to get finance from a bank and so, for that reason, the risk is higher and our rates are higher,” he said.  

Unlike banks, which typically consider an individual’s credit scorecard when assessing a loan application, SA Taxi’s approach appears more holistic.

“Credit metrics, generally, are driven by employment and taxi operators are self-employed – they’re SMEs, they’re running their own businesses. What we’ve had to do is work out a way of establishing whether the business will be a good business.

“What we really look at is the route; is the prospective route that this taxi operator has chosen to run going to generate sufficient income to cover the loan and then leave a nice healthy discretionary income for the operator and his family?”

He explained that the firm uses data – which includes individual vehicle’s routes, hours of operation, peak times and mileage – generated by telematics devices installed on all vehicles that it finances and insures to determine the potential profitability of different routes. The data is used to adjust premiums based on the risks associated with routes. It is also used to monitor average trips undertaken and mileage covered in real time so as to alert operators when a taxi may not be operating profitability, thereby reducing the risk of instalments being missed.

In assessing loan applications, it also considers the type of vehicle that a potential operator wishes to finance and whether the vehicle can be overhauled and resold if necessary. 

He told Moneyweb the firm assisted around 7 000 operators, which had been blacklisted, to clear their names at credit bureaus and instituted a temporary moratorium on repossessions following the protests.

Together with industry leaders, it is engaging with vehicle manufacturers to mitigate steep increases in new vehicle prices as well as prevent dealerships from adding unnecessary extras to vehicles, which drive up costs. It is also engaging with government to attract cheaper funding into the industry.

As at March 31, SA Taxi’s 22 300 clients operated in excess of 27 000 minibus taxis. Since 2008, it has empowered 61 000 SMEs, of which 100% are black-owned and 20% are owned by women, its data shows.

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