Author: Thebe Matlhaku
The newly signed Credit Relief Bill will have adverse effects on bank confidence in extending loans to low – income earners (Wasserman, H. 2019) [consumers]. According to COO Benay Sager of DebtBusters, the bill to expunge the debts of consumers earning a monthly gross or net income of R 7 500 with unsecured loans (loans taken without collateral) of R 50 000 will adversely affect the debtors and the entire banking association.
The Banking Association of South Africa (BASA) has categorically stated that the solution is not in the best interests of both parties as low – income earners will revert back to the banks for loans given the country’s economic climate (Wassermann, H. 2019).
According to News 24’s Nompilo Kunene (2018) consumers are having a constant battle to make ends meet. Not only are consumers cancelling insurance policies to pull funds in order to cover physiological needs, some consumers are even resorting to borrow from loan sharks at exorbitantly high lending rates.
According to (Wasserman, H. 2019) of Business Live, Capitec has once again distinguished itself from its competitors with only 5% of its balance sheet reserved for loans to consumers who earn less than R 7 500 a month. This decision was strategic in that it will safeguard the banks’ profits as majority of their consumers are low income earners.
As highlighted earlier, the promulgation of the new bill will not resolve the real issue that is a lack of financial literacy amongst South African consumers. Business Tech (2018) listed some of the reasons behind the financial literacy or vulnerability of most South African consumers. Consumers live beyond their means, purchase products they do not need, do not adhere to a budget and boast unfavourable credit records.
Importantly, this view is not only analysed independently as South African consumers are urged to save abreast an economic downturn, increasing costs in food and transport, high medical costs and disposable income increasing at a lower rate than inflation. The current economic environment in the nation has made it difficult for willing consumers to begin a process of relieving themselves from debt.
In order to curb this and provide relief, banks and other financial institutions alike have created educational information readily available to assist consumers in improving their financial position. These are namely but not limited to reading on how the financial system works, reading of newspapers and magazines, searching for material on the internet, listening to the financial news on the radio, attending financial literacy classes, starting an investment club and sharing the knowledge with family.
Whilst the President’s intention to provide financial reprieve for over – indebted consumers is admirable in a failing economy, the method used is unsustainable as the consumers in question will be prevented from accessing debt or return to the same level of over – indedbtedness due to a lack of financial acumen.
In the words of George Santayana, “those who cannot remember the past are condemned to repeat it”.
Author: Thebe Matlhaku