10 Wilken Credit Debt

Credit and debt: Problems In Accessing and dealing with it Ina Wilken - 2007 - - South African National Consumer Union -

Introduction: A multi-tentacle creature?

Bills and Regulations

Managing Credit and Debt:

FSB

NCA

CPA

Debt Collector’s Council

Over indebtedness

11 Official languages

37 Government Departments

Illiteracy. . .

South African Background

Credit market > R700 billion/year

Involves 14 million consumers and

4 000 credit providers

± 300 000 over-indebted 700 000 debt stressed

Overdrafts rising 32%, credit cards 188%, leases 289%,

installment sales 138%

After increasing by 25% in June 2007, private

sector credit extension slowed to 23,1% in July 2007 .

Mortgage Advances increased from R295b to R793,1b

between 2001 and August 2007

Disbursements: Quarter ending February ‘07 NCR Industry Statistics 0.52% 24,894 0.7% $8,414,979 Section 21 Companies 0.41% 19,700 0.8% $10,404,721 Co-Operatives 2.49% 119,667 0.8% $10,139,383 Trusts 32.37% 1,557,136 13.7% $172,865,174 Close Corporations 38.45% 1,849,989 43.8% $552,556,405 Private Companies 0.86% 41,404 0.3% $3,371,115 Public Companies 24.90% 1,198,068 40.0% $504,920,800 Banks 100.00% 4,810,858 100.0% $1,262,672,576 Total for Industry % of Industry by number Number of loans disbursed % of Industry by value Total Disbursements

Enacted 1 st June 2007

Aims to protect the consumer from being

granted credit recklessly, and the creation of a

fair and non-discriminatory credit market.

The National Credit Regulator : responsibility for the enforcement of the Act

The National Consumer Tribunal : conducts hearings into related complaints

Applies to all credit products where payment is deferred and where interest or fee is payable: overdrafts, credit cards, installment agreements, leases, secured loans and credit guarantees.

Unfortunately one of the side effects is that the majority of South Africans, already struggling under resent economic climate, are unable to get credit

Example: decline rate for home loans up to 60% per year!

The National Credit Act

The National Credit Act and

Before any credit provider lends money, it must

do a thorough check to see whether the client will

be able to afford the loan.

If he isn’t, and the client fails to pay back the loan,

this could be regarded as “reckless credit” and written off

i) Borrowers: ii) Lenders:

If you’re in the business of lending, pawning or selling

goods on hire-purchase-type arrangements, the NCA will

heavily affect your business.

If you run an ordinary business that allows some customers

to pay at the end of the month or sometime after they receive

the invoice, you will be mildly affected.

You then needn’t register at the National Credit Regulator, nor

do you have to do affordability checks on your customers.

Structure for recourse in South Africa www.finmarktrust.org.za

The Consumer Protection Bill

The consumer

The Supplier

Transaction

Service Agreement

Goods

Services

Key provisions

Defining :

SA Black L iving S tandard M easure

LSM1 : Rural; income < R1 000/month (poorest group)

LSM10 : Urban; well-educated; income up to R19 000pm

(richest)

LSM5/6 : Fastest-growing (R2 500 - R4 000pm); young women

LSM5/6 : 3 million; collective buying power R160-billion per year

Bappies : “ B ooming, A spirational and P reviously P oor” – SA’s

biggest economic wave yet. Mostly Black, young,

single, females ( 1,09 million; falling in LSM5 group)

(Consumers: Range LSM1 – LSM10)

Buppies : “ B lack U pwardly Mobile P rofessionals”; Black elite since the 90’s

BAPPIES + BUPPIES = 27% of population! Spending power of R70b/year – almost 40% of entire bottom half of SA economy!

“ BLACK DIAMONDS” : 322 000 in 2006, increasing to 2,5m in 2007! Average income R5 000 – R12 000/m. Buying power of R180b!

NB! “Black Diamonds” are not really making it! A mere 300 000 can afford it! (paying mortgages, car installments, school fees, traveling, golf, eating out – incomes >R12 000)

SA Black L iving S tandard M easure

Income Profile: LSM1 – LSM9

LSM Spending Profile

LSM Banking Profile

Educating SANCU’s “self-help approach”

The “Water Tank” Diagram

i) Calculate your income

ii) Fixed Payments

iii) Variable Payments

iv) Discretionary Payments

v) Your personal Budget Sheet

Five easy steps to personal financial empowerment (i)

[1] Be your own business and make profit

Income

Costs

Profit / Loss

[2] Ideas on maximizing profits

Increase income

Controlling and reducing costs

[3] Preparing your own budget

What is a budget?

Why budget?

How to budget

- The Careways Group -

Five easy steps to personal financial empowerment (ii)

[4] Experiencing the power of savings

What to do with your profit

Savings

Making provision for major life events

[5] The dangers of borrowing

When to borrow

Where to borrow

What are your rights and obligations?

Already over indebted – what to do?

- The Careways Group -

Dealing with Debt!

Develop a Budget

Contact your Creditors

Dealing with Debt Collectors

Credit Counseling

Auto and Home Loans

Debt Consolidation

Bankruptcy

Factors impinging on SA Consumers

World-wide inflation on foodstuffs

Imported inflation, especially oil price

Interest rate hikes: 350 basis points

since mid-2007

Price of public utilities i.e. electricity,

water, telephone services are

regulated by Government – influence

inflation – consumer has to accept!

Four Credit Associations holding hands?

The Banking Association of South Africa,

Consumer Credit Association (CCA)

Furniture Traders Association (FTA) and

Micro Finance SA (MFSA)

Representing members who provide in excess of 95% (R850b)

private sector credit to consumers in SA

Common goal : dealing with over-indebtedness in the interest of a healthy and vibrant credit market

Financial advice to over-indebted consumers; facilitate

restructuring of their debts to improve affordability; and

Ensure that consumers can eventually fully recover from their over

indebtedness, fully repay their debts and remain viable and credit worthy borrowers.

“ Such an industry-driven voluntary mediation process could offer

consumers and credit providers a potentially better, less costly deal.”

2007 Banking Bill for low income groups

Allows access to banking services, mainstream products and financial advice

2004: financial Charter

Mzansi Bank; >3 million accounts at present

2006: 49% of total population “unbanked”

Problem of access to financial services too large for commercial banks alone

SA Micro Finance Apex Fund (Samaf): micro credit, savings, insurance and payment facilities to active poor rural households, farmers and agri-businesses. Provides loans of up to R100 000 payable over 12 months.

Access to entrepreneurs in SA: challenges and opportunities