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NOT EVERYONE HAS A RESERVE BANK TO BAIL THEM OUT

Interest burdenDeath divorce and destitution - called the 3 D's of opportunity, these are generally indicators of an opportunity to pick up a bargain. While looking at houses for sale a couple of years ago I mentioned this maxim to a fellow home seeker and was promptly accused of being a vulture looking to benefit off someone else's hardship.

In recent weeks, African Bank (ABIL) has taken the local spotlight with it being placed into curatorship (the banking equivalent of business rescue) by the SA Reserve Bank. It would seem that although ABIL has made what Patrick Cairns of Moneyweb refers to as truly awful business decisions, the problem runs deeper. In his opinion piece, Mr Cairns refers to a moral and ethical problem within the microlending sector where lenders are exploiting the poor – lending excessive amounts to people who have little hope of repaying that debt. ABIL’s R17bn bad lending book together with the 70,000 summonses issued since March 2014 indicates that there are a lot of desperate borrowers out there being preyed on by the lenders.

How does one balance the 3 D’s with moral and ethical behaviour?

By recognising that there is balance between these - buying a car from a Satinsky client because they can no longer afford the payment may relieve them of the debt burden, but offering them an excessively low price because you know they are desperate tips the moral and ethical balance.

How does this affect you and me?

When you get to the 15th of the month – still ten days to pay day and you realise that the money available is definitely not going to see you through, those short term loans start looking less of a spam nuisance and more attractive. The more desperate your cash flow, the more attractive they seem. You may not succumb to this, but your staff who are invariably far less financially secure, may well do so. There is generally very little understanding of the link between obtaining unsecured loans and the price you pay for those loans. In terms of the National Credit Act, lenders can and do charge up to 32.65%pa in interest plus a R57 monthly service charge, not to mention an initiation fee when you take out the loan.

Condemning the lender as a vulture may release some frustration but achieves nothing else. A wiser course would be to educate staff on the cost of borrowing in this manner and cultivate a culture of saving first and spending later.