An evaluation of the South African National Credit Act and the implications for credit users

Luttig, Helmuth Hartwig (2010-12)

Thesis (MBA (Business Management))--University of Stellenbosch, 2010.

Thesis

ENGLISH ABSTRACT: The National Credit Act came into being on the 1st of June 2007 and besides its other objectives was intended to make credit more accessible to all South Africans, to stop unreasonable practices by lenders and to protect consumers against reckless lending. This research study investigates the credit environment for the period since the implementation of the Act up to the fourth quarter of 2009 to determine whether South African credit users are indeed better off or whether we are heading for a credit crisis. A literature review was conducted to investigate the extension of credit to households during the period under review and to investigate consumers’ ability and willingness to repay their debt. Due to the global and local financial crisis that happened during this period and the losses and wealth destruction that ensued, the research was extended to consider the influence of the macroeconomic situation on the debtors’ ability to honour their debt commitments. To determine whether South African households are heading for a credit crisis the researcher reviewed literature relating to the financial vulnerability of households, the application of their monthly disposable income, the main reasons for entering into credit agreements, and lastly the extent of over indebtedness. The findings indicate that credit has indeed become more accessible to all South Africans as the number of credit active consumers continued to increase from quarter to quarter. With regards to the cost of credit and the minimum qualifying criteria, credit also became more accessible as individuals earning as little as R1 500 per month became eligible for credit and store cards that used to be exclusive to higher income earners. During the period under review the standing of credit active consumers continued to deteriorate with only 54% of credit active users classified as current at the end of the period, almost 10% lower than before the implementation of the act. It was also found that macroeconomic influences from around the world had a real influence on the ability of credit active consumers to honour their financial commitments. Increased interest rates, inflation, higher transport and energy costs, unemployment and many other factors influenced the income available for and the ability to repay debt over the period under review. Lastly it was found that households are increasingly vulnerable to any changes in their income, expenses, savings or debt position. It is increasing to such an extent that more than 50% of all credit active consumers surveyed during a previous study admitted to borrowing in order to re-pay debt and that a relatively large percentage of users are committed to debt repayments for more than 100% of their monthly income. These findings support the opinion that a credit crisis is on the loom in the South African credit industry. Due to the relatively short period covered by the research stretches and the multitude of income groups and credit agreements included, more research is needed to make specific recommendations to improve the position of credit active consumers. The challenges facing the industry are further complicated by the need credit and other needs of the lower income earners, the required price-for-risk-policies of credit providers and the low levels of financial education amongst users. All three these themes require more research.

AFRIKAANSE OPSOMMING: Die Nasionale Kredietwet wat op 1 Junie 2007 in werking getree het het onder meer ten doel gehad om krediet meer toeganklik te maak vir alle Suid Afrikaners, om onbillike praktyke deur krediegewers stop te sit en om gebruikers te beskerm teen roekelose kredietverlening. Hierdie navorsing verken die kredietomgewing vir die tydperk sedert inwerkingtreding van die wet tot en met vierde kwartaal van 2009 ten einde vas te stel of Suid Afrikaanse gebruikers inderdaad beter daaraan toe is, en of ons afstuur op n krediet krisis. ‘n Literatuurstudie is onderneem om die toestaan van die verskillende tipes huishoudelike krediet tydens hierdie termyn te ondersoek, sowel as die gebruikers daarvan se gewilligheid en vermoë om hul maandelikse skuldverpligtinge na te kom. Vanwee die ernstige finansiële krisis wat tydens hierdie periode in die wêreld en in Suid Afrika grootskaalse verliese en welvaartsvernietiging tot gevolg gehad het, is die literatuurstudie uitgebrei om ook oorweging te gee aan die invloed van hierdie gebeure op skuldenaars se vermoë om hul skuldverpligtinge te diens. Ten einde vas te stel of Suid Afrikaanse huishoudings afstuur op ‘n kredietkrisis het die navorser literatuur bestudeer rakende die finansiële kwesbaarheid al dan nie van huishoudings, die aanwending van hul beskikbare inkomste, die redes vir huishoudings om geld te leen en laastens die omvang van gebruikers wat meer veskuldig is as wat hulle kan bekostig. Die bevindinge dui daarop dat krediet weliswaar meer toeganklik is vir alle Suid Afrikaners aangesien die aantal krediet gebruikers gedurende die tydperk van kwartaal tot kwartaal gegroei het. Wat betref die koste daarvan en die minimum vereistes daarvoor het krediet ook meer toeganklik geword, en kwalifiseer individue wat so min as R1 500 per maand verdien nou vir kreditkaarte en winkel krediet wat voorheen net beskore was vir die hoër inkomste groepe. Tydens hierdie periode het die status van kredietgebruikers verder verswak en het die persentasie kredietgebruikers wat op datum is met hul verpligtinge so laag as 54% gedaal; bykans 10% minder as voor die inwerkingtreding van die wet. Daar is verder bevind dat makro ekonomiese toestande in die res van die wêreld en Suid Afrika ‘n daadwerklike invloed het op die vermoë van kredietgebruikers om hul skuldverpligtinge na te kom. Stygende rentekoerse, inflasie, duurder vervoer en energiekoste, werkloosheid en vele ander faktore het die kontant beskikbaar vir en die vermoë om skuld te delg baie nadelig geraak oor heirdie tydperk. Laastens is bevind dat huishoudings toenemend kwesbaar is vir enige veranderinge in hul inkomste, uitgawe, spaar of skuld verpligtinge. Soveel-so dat meer as 50% van alle gebruikers van krediet erken dat hulle by tye geld geleen het om ander skuld te betaal, en dat ‘n beduidelnde persentasie gebruikers tot meer as 100% van hul besteebare inkomste verbind is vir maandelikse terugbetalings. Bogenoemde bevindinge ondersteun die opinie dat daar n dreigende krisis in die Suid Afrikaanse kredietomgewing is. Aangesien hierdie navorsing beperk is tot ‘n relatiewe kort termyn en dit ‘n groot spektum van inkomstegroepe en kredietooreenkomste dek, is verdere navorsing nodig om spesifieke aanbevelings te maak ten einde Suid Afrikaanse kredietgebruikers in ‘n beter posisie te plaas. Die uitdagings in die industrie word verder gekompliseer deur die krediet en ander behoeftes van laer inkomstegroepe, die noodsaaklikheid vir uitleners om hul produkte te prys vir die inherente risikos wat daaraan gebonde is en die lae vlak van finansiële opleiding onder gebruikers. Al drie hierdie temas benodig verdere navorsing.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/6401
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