In 2008, James Ntseane borrowed R8 000 from African Bank Investments to pay for his grandmother’s funeral in the village of Ganyesa. It seemed so easy, that the platinum miner took out two more loans, worth R10 000, for a sofa and house extension over the following six months.
Four years later, he owes at least R30 515, according to text messages he gets from African Bank, South Africa’s biggest provider of unsecured loans. To make the payments, R1 700 is taken off his monthly salary of about R12 600 by his employer under a court-imposed garnishee order and given to the lender. He doesn’t know how much interest he is paying.
“Even if they tell me 14 percent, I don’t know how much that is,” said Ntseane, 41, who works nights operating a rock-hauling machine more than a kilometre under the surface at Impala Platinum’s mine north of Johannesburg. “They are taking too much money from us. They don’t even care how much you earn.”
Ntseane is one of more than 9 million South Africans with a blemished credit record, their ranks swollen by an unsecured-loan boom driven by lenders including African Bank and counterparts Capitec and Bayport. Rising indebtedness from interest rates of as much as 80 percent a year may have contributed to a series of strikes.
“A significant number of South Africans are over-indebted to the point where they are willing to take desperate action to increase their pay,” Annabel Bishop, an economist at Investec, said in an e-mail.
In November, South Africa’s National Treasury and the Banking Association of South Africa said they had agreed to tighten lending rules after the number of people with bad credit records rose to a record, threatening to trap poor families in a “debt spiral”.
Finance Minister Pravin Gordhan called the rise in unsecured lending “worrying”.
The value of consumer loans not backed by assets surged 39 percent in the year through September to R140 billion, according to the Johannesburg-based National Credit Regulator. The loans accounted for 10 percent of consumer credit at the end of September, up from 8 percent a year earlier.
“You have got people who are getting more and more over-indebted,” Nomsa Motshegare, the credit regulator’s chief executive, said in October. “At the same time you have got more and more money being extended to these people.”
African Bank boosted its loan advances by 33 percent in the year to September, while net income rose 17 percent to R2.74bn, the lender said in November. Capitec’s 39 percent increase in loans in the six months to August helped net income surge 43 percent to R700 million, the company said in September.
Bayport, a unit of Transaction Capital, boosted unsecured lending 55 percent to R4.7bn by the end of September. The bank makes financial provisions assuming that 55 percent of its loans will go bad, said David Hurwitz, Transaction’s chief financial officer, said on July 25.
“A complex set of business rules apply to our credit granting to ensure that our lending is not reckless,” African Bank said in response to questions. Those rules give the bank “significant comfort in screening our clients”.
African Bank chief executive Leon Kirkinis said in November that more stringent criteria was now being used to assess borrowers.
A third of people seeking loans from Capitec were over-committed and this was indicative of what might be happening in the wider industry, Capitec chief executive Riaan Stassen said in response to questions.
The company ensures that clients can afford the loans they take out and appoints staff who can speak the predominant language of the region in which the loans are made, he said.
Mark Herskovits, head of debt capital markets for Transaction Capital, said by e-mail that with chief executive Mark Lamberti and chief financial officer Hurwitz on vacation, the company would be unable to comment on how Bayport assesses loan applications and tries to ensure borrowers understand the liabilities they are taking on.
Many borrowers, like Ntseane, may not fully understand the contracts they are signing because they come from impoverished, rural areas and have had a poor education. South Africa’s mathematics education bettered only Yemen’s in a survey of 144 countries by the World Economic Forum in its 2012/13 Global Competitiveness Report. Ntseane says he got his high school qualification at the age of 26.
High levels of debt were one reason behind the violent strike at Lonmin’s Marikana mine.
An earlier strike at Impala led to four deaths. The strikes ended only when pay rises of as much as 22 percent were agreed to by the companies. “There were many, many causal factors,” Trade and Industry Minister Rob Davies said in Cape Town in October.
One “is high levels of indebtedness. Unsustainable debt levels are fuelling high wage demands.”
Miners who borrow are often hampered by a poor command of English. While African Bank says it also offers contracts in Zulu and Southern Sotho, Impala and Lonmin operate in predominantly Tswana-speaking areas. Many miners come from the Eastern Cape, where the main language is Xhosa.
“I don’t know how it works,” said Ntseane, who has worked at the mine for 11 years. “I wasn’t expecting garnishees, because she didn’t properly explain what I should expect,” he said of the African Bank representative.
After being stabbed in a home robbery in 2010, Ntseane couldn’t work for 10 months and said African Bank agreed to put off the loan repayments and wouldn’t charge him interest. When he resumed work he discovered three garnishee orders on his pay slip, which he showed to Bloomberg reporters.
Bank representatives are expected to fully explain contracts to borrowers, African Bank said in an e-mailed response to questions.
Many lenders collect arrears by obtaining magistrate’s court orders that instruct employers to dock workers’ salaries and pay the money over to creditors.
About 3 million garnishee orders are currently active in South Africa, according to the National Debt Mediation Association, a credit industry body in Johannesburg that assists indebted consumers and estimates that about 8 000 of them apply for debt counselling each month.
Between 10 and 15 percent of workers at Lonmin and Anglo American Platinum have at least one garnishee order against them, according to Kem Westdyk, chief executive of Summit Garnishee Solutions, which helps the two companies review claims against their payrolls.
Most orders are issued in favour of African Bank and Bayport because they provide the bulk of loans and do their own collections, while lenders such as Capitec use lawyers and debt collectors, he said.
“At Anglo Platinum, African Bank has about 25 to 30 percent of garnishee orders,” Westdyk said.
“They may have reckless lending problems. We have employees at Anglo Platinum or Lonmin that have five or six African Bank garnishee orders against their names.”
Impala offers counselling and interest-free loans in some cases to deter its workers from borrowing money they can’t afford to pay back, Johan Theron, the company’s executive for personnel, said.
Low numeracy and literacy mean that Impala’s efforts may not be fully understood, he said.
“We are powerless in terms of being able to look out for our employees’ best interests because it becomes an order of court and we have to make the deductions. It would help us, as an employer, a lot if we had a basis on which we could refuse these garnishee orders.”
Davies and the country’s national credit regulator have pledged to clamp down on abuses.
That action has come too late for Ntseane, who needs to work overtime to afford the fare for a four-hour bus ride home to see his children once a month.
“I don’t know when I will stop paying,” he said. “I’m just working for free.” – Franz Wild, Mike Cohen and Renee Bonorchis from Bloomberg