Investigating the appropriateness of consolidation loans to mitigate household over-indebtedness in South Africa

Kamutiba, Freddy (2020-12)

Thesis (MPhil)--Stellenbosch University, 2020.

Thesis

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.

AFRIKAANSE OPSOMMING : Huishoudelike oorskuld het in Suid-Afrika toegeneem, wat kommer wek oor die sosio-ekonomiese toestande van die middelklas. Navorsing toon dat 'n toename in ongesekureerde krediet nie direk verband hou met verbruik en ekonomiese groei nie, maar met die gebruik van krediet om krediet te betaal deur middel van konsolidasie-lenings. Konsolidasie-lenings word aangedryf deur aggressiewe bemarking wat voordeel trek uit naïewe verbruikers. Hierdie studie was gerig op die ondersoek na die toepaslikheid van konsolidasie-lenings as 'n skuld oplossing. In plaas daarvan word die subjektiewe figuur opgespoor wat na vore kom uit die skuldenaar-skuldeiser-verhoudings onder finansiële kapitalisme en neoliberalisme, 'die skuldige man'. Die gebruik van konsolidasie-lenings as 'n skuld oplossing is 'n manifestasie van die strukturele skuld van die geleefde ervaring van die skuldige man. Om dit uit te lig, het 'n navorsingsmetodiek vir gemengde metodes literatuuroorsig gebruik, doelgerigte steekproefneming van 50 konsoliderende lening soekende verbruikers, 10 finansiële konsultante van IDM Groep en inhoudsanalise van bemarking boodskappe vir konsolidasie-lening op kredietverskaffer se webwerwe. Die resultate het aangedui dat die konsolidasie-leningspraktyke buitengewone lenings is, wat die oorskuld van huishoudings vererger. Roof praktyke is duidelik in die bemarking van eensydige konsolidasie-lenings wat die voordele van konsolidasie-lenings te veel beklemtoon, terwyl die nadele van konsolidasie-lenings afgemaak word. Die term 'konsolidasie-lening' is problematies deurdat daar verskillende praktyke is vir konsolidasie-uitleen. Dit sluit in aanvullings op lenings, voorskot rekeninge van Standard Bank, krediet wisseling van FNB en groot langtermyn persoonlike lenings van Capitec, African Bank, Direct Axis, Bayport en ABSA. Die bemarking van konsolidasie-lenings vind baat by lae-skuld geletterdheid wat lening soekers toon. Konsolidasie-lenings veroorsaak meer skuld, nie minder nie, omdat dit nuwe koste tot gevolg het, hoër rentekoerse as laer rentekoerse, stygings in die betalingsvoorwaardes, en dit beïnvloed bekostigbaarheid oor 'n lang tydperk. Dit behels finansiële uitsluiting, wat verbruikers blootstel aan hoërisikolenings (Payday-lenings en Loan Sharks) en verbied individue om sinvolle krediete (huislenings en voertuig finansiering) te verkry. Hierdie praktyke vererger die sosio-ekonomiese toestande van die middelklas deur toenemende ongelykheid en armoede, terwyl dit 'n versperring vir skuld bestuur in Suid-Afrika bied. Wetgewende hervormings is nodig om roof lenings te voorkom en skuld geletterdheid en huishoudelike begroting te verbeter. Verdere navorsing is nodig om die rol van instellings soos universiteite, skole, godsdienstige en finansiële instellings, werkgewers, vakbonde en politieke partye in die versagting van huishoudelike huishoudings te bepaal.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/109320
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