Recent news reports alleging irresponsible lending and debt retrieval practices by Capitec Bank in the past have prompted me to contextualise the allegations by revisiting South Africas retail credit environment and reflecting on improvements in consumer protection over the years.
In the early years of our democracy, South Africa was the Wild West for consumers as far as accessing credit was concerned. Early government thinking, naively, was that extending unsecured credit to the unbanked would boost financial inclusion and miraculously uplift those disadvantaged by apartheid.
Governments credit experiment backfired disastrously for the people it was aiming to help. In her penetrating study, Money from nothing indebtedness and aspiration in South Africa, published in 2014 but based on research done in 2007 and 2008, a professor of anthropology at the London School of Economics, Deborah James, relayed heartbreaking stories of poor and working-class South Africans who had become caught in a vicious web of financial and legal woes through easy access to unsecured credit.
Capitec, founded in 2001, was a player in extending credit to the previously unbanked, but was by no means the only one. In fact, credit providers by the dozen climbed on the unsecured lending bandwagon, including the original African Bank, which collapsed in 2014 because it had unwisely concentrated almost exclusively on this market. Credit providers included retail furniture chains, which had been abusing the credit system for years, leaving thousands, if not millions, of people trapped paying off debt at exorbitant rates and subject to ruthless lawyers charging excessive fees should they put a foot wrong.
The National Credit Act came into effect in 2005, along with the office of the National Credit Regulator, and since then the credit industry has slowly come under stricter control and the criteria for granting credit have been tightened. Bigger institutional lenders, including Capitec, have generally become more responsible in granting credit probably from a mixture of increased regulation and stricter internal risk management practices as a consequence of the 2008 financial crisis.
