Taste of bad debt sours winelands

26 October 2014 - 02:06 By ANN CROTTY
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RURAL ATM: Poorly paid farmworkers have been finding it easy to secure loans they have little hope of paying back
RURAL ATM: Poorly paid farmworkers have been finding it easy to secure loans they have little hope of paying back
Image: Pictures: ESA ALEXANDER

Unsecured lenders sow seeds of misery among farmworkers

Here's a story that has been doing the rounds in farming circles in the Ceres wine district about the plague of unsecured lending in the Western Cape.

A farmworker who was earning about R150 a day was "lent" R22000 by one of the bigger unsecured lenders. To celebrate his apparent windfall, he spent most of it on a party. But soon, the party got out of hand, and he was shot and killed.

There are similar stories all over the country, attesting to what appears to be a rash of reckless credit (and the inevitable bad debt), that are now woven into the tatty fabric of South Africa's working class.

Finally, the sort of reckless lending behind the grim story of the farmworker's death may soon be coming to an end.

Pressured by private individuals and lobby groups, who witnessed first-hand the devastation caused by reckless lending, the government is slowly closing legal loopholes created by companies seeking to bag some of the huge profits to be made from reckless lending.

Two weeks ago it emerged that the Stellenbosch Legal Aid Centre is taking 14 respondents to court - including the justice minister, National Credit Regulator, and a number of lenders themselves - over emoluments attachment orders, including garnishee orders.

Farmers in the Western Cape, who have their own stories about how their workers were lent large amounts they had little hope of repaying, will be hoping the Stellenbosch group succeeds and it becomes much harder for lenders to abuse attachment orders that are enabling much of the reckless lending.

"Workers are going to ATMs each week and are only getting half of what they have been paid because of repayment deductions; they think the farmer has cut their pay and don't realise it's the bank that's making deductions for loans they took out," said a farm manager who asked to remain anonymous.

The farmers say they have implored the banks - mainly Capitec and African Bank - to impose better checks and balances. While SMSes offering easy credit have slowed down, there has been little sign of restraint from the banks.

"Workers are keen to get the money, so they don't reveal all the details as honestly as they should, and the bank is keen to lend, so it doesn't check as closely as it should," said a second manager.

He tells of workers, who live on his farm, coming to the manager over the weekend looking for money for food.

Debt counsellor Deborah Solomon, of the web-based portal theDCI.co.za, says: "Consumers and credit providers have a vested interest in not disclosing all the relevant information to each other."

A key part of the duplicity is the 5% per month interest charged on unsecured loans. When the workers see the 5% number, they believe they are getting a good deal - but the lenders often obscure the fact that the monthly charge amounts to 60% a year.

Perversely, the situation has become acute over the past six or seven years as cheaper banking costs make it feasible for farmers to pay wages directly into bank accounts - which should be a good thing.

Says the farm manager: "Capitec offered a very fast and cheap service, which was a very attractive alternative to paying cash wages - but the reckless lending has destroyed those attractions."

Joy van Biljon, who runs the Koue Bokkeveld Training Centre in the Boland, says they run basic budgeting courses and counselling for workers, but the educational process takes time.

" Hi-tech banking methods and lack of simple documentation disempowers workers," says Va n Biljon.

The banks have denied that they lend recklessly. African Bank, before its collapse, was fined a mere R20-million for lending recklessly at just one branch in Dundee in KwaZulu-Natal - the bank claimed this was an isolated example.

However, African Bank's spiral into curatorship under a mountain of bad debts suggests this wasn't the whole truth.

Charl Nel, a spokesman for Capitec, says his bank is confident it does not lend recklessly.

While many industry commentators see the 10 million consumers with impaired credit records as clear evidence of the National Credit Regulator's (NCR) inability to regulate effectively, the regulator's defenders point out that the National Credit Act isn't clear about the "affordability guidelines" that banks should follow.

This, they argue, makes it difficult for the NCR to take action against reckless lending. New affordability guidelines are expected to be gazetted within weeks, which hopefully will address the problem.

"Being able to take a tougher stand on reckless lending could see the NCR taking the sort of action we recently saw against Wonga in the UK," said one analyst, referring to the UK regulator, which recently forced payday lender Wonga to write off £220-million (about R4-billion) worth of loans deemed "reckless".

However not everyone believes the new affordability guidelines will improve things.

Clark Gardner of Summit Financial Partners, who was involved in motivating the Stellenbosch University legal action, describes the guidelines as vague and says they will be difficult to observe and enforce.

He also believes they could make the situation worse because they allow up to 90% of net income to be committed to debt instalments.

"The limit should be 40% of basic income," states Gardner.

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