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Extension of short-term credit up and economy, jobs benefit: Altron index

30 November 2021 - 14:18
The extension of short-term credit increased by 8.6% when comparing Q2 2020 and Q2 2021, according to the Altron Fintech Short-term Credit Impact index.
The extension of short-term credit increased by 8.6% when comparing Q2 2020 and Q2 2021, according to the Altron Fintech Short-term Credit Impact index.
Image: Supplied

The extension of short-term credit, a key financial instrument for low-income households and micro-businesses, increased by 2.7% in the second quarter of 2021 compared to the first quarter of the year, and was up 8.6% year-on-year. 

This resulted in an estimated economy-wide increase in sales of R459m, an additional 800 jobs being created and government collecting R56m more in taxes in the second quarter of 2021 than the corresponding quarter in 2020.

This is according to the Altron Fintech Short-term Credit Impact Index (AFSCI) for Q2 2021, which tracks the economic impact of short-term lending in SA.

The index found the net value of short-term credit (new loans, less loans repaid or written-off) was also 2.7% higher in the second quarter of 2021 than in the previous quarter. 

The Q2 AFSCI released on Tuesday morning was developed by Altron Fintech in partnership with Keith Lockwood, an independent economic consultant and adjunct faculty member of the Gordon Institute of Business Science.

Lockwood said short-term loans were those with a maximum value of R8,000 and a term of repayments of up to six months. These loans were advanced by individuals and companies using their own capital and not from depositors’ cash.

“There could be significant upside benefit to the economy if the value of short-term credit advanced is raised by R1bn. 

“Sales throughout the economy would increase by R2.9bn, employment supported would rise by close to 50% to more than 15,000 jobs, and government could expect to collect around R340m in additional taxes,” Lockwood said.

Altron Fintech MD Johan Gellatly said credit was an important catalyst for economic growth.

If we want to grow the economy and create jobs, it is clear we need to make responsible short-term credit more accessible, particularly to lower-income households.
Johan Gellatly, Altron Fintech MD 

“An increase in credit extension injects money previously out of circulation back into the economy, and thereby generates a stream of economic activity and incomes.

“If we want to grow the economy and create jobs, it is clear we need to make responsible short-term credit more accessible, particularly to lower-income households,” Gellatly said.

The index found that total new credit extension by all forms of consumer credit dropped by 57% under the hard lockdown due to Covid-19 in the second quarter of 2020. 

It said since then, the value of credit advanced recovered strongly, with all forms of credit, except developmental and unsecured credit, rising to above their pre-Covid levels by the second quarter of 2021.  

The index noted in the second quarter of 2021, 64% of all consumer credit applications were rejected. 

It said this was largely a reflection that the financial position of the average consumer remained under pressure.  

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