Over half of South Africa’s credit-active consumers are over-indebted, the SA Human Rights Commission (SAHRC) reported. “Of 19 million credit-active consumers in South Africa, 50% had impaired credit records, three months plus in arrears,” Western Cape provincial manager Karam Singh said in Johannesburg. “Fifteen percent are described as debt stressed, one to two months in arrears.”
As a result, more than 11 million of South Africa’s credit active consumers were described as over-indebted. He was addressing an SAHRC discussion on business, human rights, and the implications of micro-lending on access to justice. “The private sector broadly, government, and the public, are not aware of their obligations, roles, responsibilities and rights,” Singh said. “There’s low legal literacy around rights generally in the country. That’s not something unique to communities, it’s broadly within the private sector as well.”
In addition, there was no common understanding, social contract or clear commitment on the obligations and responsibilities of business with regard to human rights. “I would agree that the macro-economic system that we have continues to favour historical wealth creation and that the system, the economic system we have in place perpetuates inequality and is characterised by weak regulatory oversight,” he said. “However, within this system we have seen the rise of unsecured lending as a potential hope for poor people to access cash.”
The problem within the unsecured lending market was the rise of consumer indebtedness and the threat of predatory or reckless lending. A significant part of the problem in South Africa was emoluments attachment orders (EOAs). EOAs, issued under the Magistrate’s Court Act, are court orders used to make debt repayments directly from a debtor’s salary, without considering their personal situation and other obligations. “EOAs were being issued… through a clerk of the court, an administrative official who issues a court order attaching a debtor’s earnings to execution of the debt without effective judicial oversight,” Singh said.
The SAHRC has taken up a case on behalf of indebted workers in the Western Cape as it believes certain sections of the act are constitutionally suspect, and invalid. Another problem was consent orders were being signed outside the jurisdiction where the debtor lived or worked, making it more difficult for debtors to access justice. Historically, in South Africa, the poor had been unable to obtain loans because they had no assets as security, which was where micro and unsecured lending had stepped in. “For persons living in poverty, loans were not available as a means of lifting oneself out of the confines of poverty,” Singh said. “What we are seeing in South Africa and other parts of the world, even in the US and UK, is that these [micro] loans are being used for consumption.”
From 2007 to 2012, outstanding unsecured credit in South Africa increased from R41 billion to R159 billion. With a faltering economy, cash-strapped consumers were struggling to pay back loans, and getting trapped in a poverty cycle and debt trap. “In 2009, studies show that 40% of the money from micro finance was used to buy food and many borrowers were taking new loans to pay [old] ones,” he said. Unsecured lending and micro-loan schemes were identified as major problems that plagued Marikana in the North West during the labour unrest in August 2012.
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