South Africa: Consumers Turn to Microlenders as Banks Refuse Loans

Jan 2009
Johannesburg, South Africa, January, 27 2009 - Consumers have turned to microlenders as they have been unable to get personal loans from banks, a major player in the micro finance industry, the Elite Group, said on Tuesday.

In large measure thanks to the new National Credit Act but also due to the downturn in the economy, banks have become wary of granting loans, said Eddie Stoop, the Elite Group’s CEO. Stoop said it had been estimated that up to 80 percent of smaller loan applications were being turned away by the big four commercial banks.

Some banks were reporting a 50 percent increase in bad debt as South Africans now owed R1,139 billion -- R8,20 of every R10 a South African earns went to pay off debt -- or should, Stoop said.

However, the latest figures from the Bureau of Market Research at Unisa showed that more South Africans could not pay and were “sliding down a steep slope into financial despair”.

Unisa research showed that the income group with the biggest debt burden earned between R500,000 and R750,000 a year.

Their debt represented more than 135 percent of their disposable income and they used 34 percent of their disposable income to pay back debt.

“Their woes have seen the property market and car sales collapse with more than 4,000 jobs lost as more than 200 car dealerships have closed,” Stoop said.

The biggest challenge facing South Africans and global financial markets was pervasive over-spending.

“We keep interest rates high partly to reduce credit spending and thus domestic inflation, and partly to protect the exchange rate and reduce imported inflation from things like oil and foodstuffs,” he said.

High inflation was disastrous for the poor, who had no spare disposable income, no savings and minimal flexibility to increase their income --other than to strike for higher wages.

“Fighting inflation is one of the best ways to help in the short term,” he said.

Other solutions included stopping spending, using all available cash to pay off debt as well as using less fuel by switching to public transport.

Stoop also encouraged cash-strapped consumers to trade in their cars and replace them with the cheapest they could find.

Source : The Citizen

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