Debt-addicts spike alarms

The number of underlying contracts also spiked by 137% to nearly 2 million, suggesting many South Africans depend on short-term loans to survive. The NCR considers a short-term loan to be between R1 and R8 000, with a term no greater than six months.

Debt addicts

The fastest growing category was the R5 000 to R8 000 bracket, says the NCR’s Consumer Credit Market Report (CCMR). The total value of loans granted in this category in the second quarter grew by 557% from the prior year to R841 million, while the number of loans granted was up nearly 600% to 131 000.

DebtBusters CEO Ian Wason says South Africans are addicted to short-term, expensive debt. He blames the spike in short-term loans on the delayed implementation of amendments to the National Credit Act (NCA) pertaining to new affordability rules.

“If credit providers’ affordability tests are policed correctly by the regulator this will come to a shuddering halt and defaults will skyrocket,” he says. NCR company secretary Lesiba Mashapa says the debt spike is being closely watched.

“There is clearly a need for the NCR to continue its investigations into short-term lending. In this regard, the enforcement of the affordability assessment regulations will play a key role,” he says.

Wason believes the drop-off in applications for debt counselling between March and July indicate stricter affordability assessments were not yet being applied.

Big fish

However, the CCMR figures include only those entities that submit quarterly returns, and exclude the majority of smaller, short-term lenders that report on an annual basis, suggesting the spike could be driven by larger players, such as banks.

The CEO of MicroFinance South Africa, Hennie Ferreira, suggests the increase in short-term loans is a function of the weak economic environment.