Poor facing loan struggle
People at the lower end of the market might in the near future find it difficult to get loans from established credit providers like banks and major retail outlets.
The banking sector expressed this sentiment as there is growing unhappiness after President Cyril Ramaphosa last month signed into law a bill that would result in lenders having to write off the debt of individuals earning up to R7,500 in gross salary with a total debt of up to R50,000.
The Banking Association of South Africa (Basa) told Sowetan this week that many banks were seriously considering stopping extending credit to the affected clients.
Basa spokesperson Dr Abba Omar estimated that with the signing of the National Credit Amendment Bill B30 of 2018, banks stood to lose between R20bn and R30bn.
The bill was signed into law to give financial relief to over-indebted consumers.
Omar said the sector was feeling hard done by as petitions to Ramaphosa not to sign the bill into law were ignored.
He said the bill was signed despite there already being measures to assist over-indebted consumers whose circumstances have changed for the worse through no fault of their own and who can't access existing debt intervention mechanisms.
"We're of the view that consumers can be better and sooner aided by enhancing the current debt review process and not introducing a completely new debt intervention mechanism," Omar said.
He said banks were already assisting over-indebted consumers by means of voluntary concession in debt review, foregoing interest and fees amounting to R3.4bn in 2016 and R4bn in 2017.
"These figures show that we've been assisting the over-indebted consumers already.
"The problem is that once you legislate it that will create an expectation that people can just get this kind of relief on demand and this is a moral hazard and could lead people behaving in an inappropriate way," he said.
Omar warned that if people in the lower income brackets struggled to get loans from formal institutions, they could head off to loan sharks, who charge exorbitant fees.
Wits University economics lecturer professor Chris Malikane said taking away debt from the lower end of the market would improve their income and boost the demand for goods and services.
"I do want people to be debt-free but the idea is not economically sound. The approach by the president is superficial because it is not addressing why are people over-indebted," Malikane said.
"Even if you can scrap the debt that doesn't address the huge inequalities faced in labour market.
"For instance, many people are going to work but before month end they have run out of cash.
"The issue requires a comprehensive approach, not just a blunt instrument of scrapping the debt."