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The moral rot in unsecured lending

It goes far beyond Abil; Cambist also morally suspicious.

Over the last week and a half, African Bank (Abil) has been the target of some of the sharpest criticism that has perhaps ever been levelled against a public company in South Africa. Its decline has been met with fierce comment.

Perhaps any business that fails its shareholders the way that Abil has should expect some measure of outrage. But it seems that there has been an even deeper level of sentiment in the way that Abil has been attacked. 

It may well be that this is because there is more to its story than just a business that has made some truly awful decisions. There is a very real moral and ethical problem here too that many people find distasteful.

Unsecured lending in South Africa has always had its detractors. Since 1992 when an exemption to the Usury Act was first granted to allow microlenders to operate legally, there have been people who are uncomfortable with the practice.

Quite simply, the whole thing is too easily corruptible. It doesn’t take much to argue that, ultimately, the business models practiced by microlenders in South Africa are exploitative, degrading and profoundly negative in their impact on the economy. 

This is a sentiment that is not limited only to lenders like Abil either. The unsecured lending industry also feeds another that is perhaps even more morally suspicious – one that is most prominently represented by Cambist.

Here is a company that promises South Africans incredible returns of 19.5% per year. How do they do that? By facilitating the sale of debt of unfortunate individuals who have failed to repay unsecured loans and have suffered the indignity of having garnishee orders granted against them.

Essentially, these are court orders that allow creditors to attach a portion of someone’s salary for the repayment of a debt. The employer is obliged to pay the creditor directly to ensure that the funds are received. 

So anyone with money on the Cambist platform is effectively collecting on the misfortunes of the poor. They are earning their 19.5% from individuals who are going home every week or every month with only a portion of the money they have worked for.

There is nothing economically uplifting about this. It is only making poor people even poorer.

It’s not enough to argue that such people made their own bad decisions and shouldn’t have taken on debt that they couldn’t repay. Because the whole system is geared against them from the start.

By its own admission, Abil has not been strict enough in its lending criteria. It has lent too much money to people who had little hope of ever paying it back. What reason would it have for doing that other than greed? Why else would it push more and more credit onto a population that everybody knew was already struggling under a huge debt burden?

And there is a clear link between this reckless lending and what Cambist is doing, because the more risk lenders take in their writing of loans, the more likely borrowers are to default. And with garnishee orders being granted with far too much alacrity, that means more business on the Cambist and other similar platforms.

It may be stretching it to say that the likes of Abil deliberately write poor loans to create a market for Cambist. But whichever way you spin it, it is an appalling exploitation of the poor.

It’s made even more unpalatable when you consider the way that Cambist markets itself. It promotes its business as something that will make its users rich.

A recent twitter post from Cambist reads: “They say it’s better to cry in an expensive car than on a bicycle… what do you think?”

Maybe I am naïve. Maybe I think too much of human nature. But what solace is there an expensive car bought with the 19.5% per annum earned off someone who can hardly afford a bicycle?

This sort of thing only highlights the ethical failure in the entire microlending cycle. It is not, and has never been, about uplifting the poor. It has been about how much money can be made off them.

As South Africans, we need to ask ourselves whether a business like Cambist belongs in a civilised, rights-based society? Can we be proud of a country whether the exploitation of the poor is sold as a means to buy yourself a nice car?

Cambist will argue that it is not doing anything illegal. It will argue that it is only facilitating the transfer of assets between willing buyers and willing sellers. The assets in question, it will say, are debt contracts. Isn’t that what is traded on the bond market every day?

But that ignores what we are actually dealing with, because behind those debt contracts are human lives. There are people trying to make an honest living, feed their families and improve their lot in the world.

And we will never better our society if we continue to callously trade on their aspirations.

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