Mashonisas cash in on ‘debt relief’ law

On 13 August 2019 President Ramaphosa signed the Credit Amendment Bill, also known as the “Debt Relief Bill”, under cover of darkness as he left for a state visit to Tanzania.

While Ramaphosa flew off in the presidential jet, I wonder if he fully comprehended the damage he was causing; visiting misery on millions of South Africans who had trusted him to better their lives.

The only people celebrating that night, thanking their lucky stars for the President’s signature, were the mashonisas (township loan sharks), who operate throughout the length and breadth of South Africa.

It is estimated the mashonisa business is worth R4-billion and that four million people are ensnared in a cycle of debt without any consumer protection.

The sharks would have been in a jovial mood because the president had effectively shut out low-income workers, who earn less than R7,500 a month, from receiving credit from financial institutions. If they are lucky enough to convince someone else to lend them money, they are going to be paying a lot more interest than they would have to a bank.

Capitec has publicly stated that, for the last two years, since the Credit Amendment Bill was first introduced, it has been scaling back exposure to people earning less than R7,500.

Effectively, the rapidly growing bank turned its back on the very group of people its business was founded on – because risks emanating from the legislation were going to be too great and too costly.

The unintended consequences of this Act are threefold.

Firstly, the biggest winners are mashonisas, whose business will increase exponentially as the appetite for lending rapidly decreases among regulated financial institutions.

Secondly, the cost of credit across the board will have to increase to cater for an increased risk to lenders from the defined group getting less than R7,500 a month.

The reality is, this group of people require cheap, readily available, credit, granted in a responsible manner based on affordability, in order to survive. There is just no way around this fact.

Thirdly, unrealistic expectations driven by this Act will be massive.

If we thought “fees must fall” was something to take notice of, wait until “debt must fall” takes hold as people who – rightly or wrongly – believe they are entitled to debt relief, start to grow agitated at the slow pace of having their applications processed.

It could take up to four years from the date of application to having the debt written off, and over this entire time affected people will not be able to access any legal debt. Guess where these people will go for credit: the mashonisas.

This Act has created a debt trap that will keep people locked into a lifetime of informal credit without any protection or recourse.

It did not have to be this way. There is, of course, a real, legitimate category of people who have no prospects of ever paying off their debts. They are mostly unemployed and have no assets, but describing those who have a job and earn less than R7,500 a month as “indigent” and over-indebted is simply a false narrative.

National Treasury estimates that 70%-75% of all active credit consumers manage to keep up with their payment schedules because consumers know how important a good credit record is to ensure they have continued access to money in order to survive.

We must ask ourselves why the president chose to ignore every single petition on this issue, including my own, and not respond to any of the salient points made and questions asked.

Similarly, we must ask why the presidency has not issued a statement confirming the Act was signed into law and why not one cabinet minister, including Minister of Trade and Industry Ebrahim Patel, has spoken up in support of the Act. There has been a wall of silence from the president and the ANC since the signing in the dead of night last week.

Cosatu has seemingly taken on the role of lead communicator in support of the Act, issuing a blistering attack on banks when the legislation was released. The labour federation made no secret of wanting this new law – even before the election.

It seems the president is being led by what is best for the ANC alliance rather than what is best for the economy and low-income South Africans.

He has chosen political interests over the interests of those needing affordable and legal credit to make it through each month.

For that, he should hang his head in shame.

If the president thinks this Act will show him to be decisively dealing with the economy, he is horribly mistaken. His action will make life harder for more people and it will all end up on his doorstep. DM