Browsing by Author "Kamutiba, Freddy"

Now showing 1 - 1 of 1
  • Thumbnail Image
    Item
    Investigating the appropriateness of consolidation loans to mitigate household over-indebtedness in South Africa
    (Stellenbosch : Stellenbosch University, 2020-12) Kamutiba, Freddy; Swilling, Mark; Spiropoulos, John; Stellenbosch University. Faculty of Economic and Management Sciences. School of Public Leadership.
    ENGLISH SUMMARY : Household over-indebtedness has increased in South Africa, raising concerns over the socio-economic conditions of the middle class. Research shows that an increase in unsecured credit is not directly related to consumption and economic growth, but to the use of credit to pay credit through consolidation loans. Consolidation loans are driven by aggressive marketing that takes advantage of naïve consumers. This study was aimed at investigating the appropriateness of consolidation loans as a debt solution. Instead, it locates the subjective figure that emerges from the debtor-creditor relationships under financial capitalism and neoliberalism, “the indebted man” The indebted man lives precariously, consumes beyond his means and his behaviour is shaped by the economic systems that he lives under. The use of consolidation loans as a debt solution is a manifestation of the structural indebtedness of the lived experience of the indebted man. To highlight this, a mixed-method research methodology used literature review, purposive sampling of 50 consolidation loan-seeking consumers, 10 financial consultants from IDM Group, and content analysis of consolidation loan marketing messages on credit providers’ websites. The results indicated that consolidation loan practices constitute predatory lending, which exacerbates household over-indebtedness. Predatory practices are evident in one-sided consolidation loan marketing that overemphasises the benefits of consolidation loans while downplaying the downsides of consolidation loans. The term “consolidation loan” is problematic in that there are several practices of consolidation lending. These include loan top-ups, advance accounts from Standard Bank, credit switch from FNB, and large long-term personal loans from Capitec, African Bank, Direct Axis, Bayport, and ABSA. Marketing of consolidation loans benefits from low-debt literacy demonstrated by loan seekers. Consolidation loans cause more debt, not less, because they result in new costs, and higher interest rates than less interest rates, increases in the terms of payment, and they affect affordability over a long period of time. This constitutes financial exclusion, exposing consumers to high-risk loans (Payday loans and Loan Sharks) and prohibits individuals from accessing meaningful credit (home loans and vehicle finance). These practices are worsening the socio-economic conditions of the middle-class by increasing inequality and poverty while presenting a barrier to debt management in South Africa. Legislative reforms are required to prevent predatory lending and improve debt literacy and household budgeting. Further research is required to determine the role of institutions such as universities, schools, religious and financial institutions, employers, trade unions and political parties in mitigating household over-indebtedness.