Consumers in South Africa had been hurt by the practices of some lenders that provided credit not backed by assets, the Public Investment Corporation (PIC) said this week.
“The PIC shares the views that the unsecured lending space has been abused by some lenders to the detriment of borrowers,” Elias Masilela, the chief executive of the state asset manager, said in response to questions on Monday, without naming the lenders.
“Borrowers have also been particularly vulnerable due to the low levels of financial literacy, resulting in them accepting unreasonable pricing.”
The PIC is Africa’s largest asset manager, managing more than R1 trillion on behalf of the government’s pension fund. It holds more than 10 percent of both African Bank and Capitec Bank, the country’s two largest unsecured lenders.
While Futuregrowth Asset Management has said it was winding down holdings of bonds of unsecured lenders in development funds because the high-interest loans hurt consumers, the PIC declined to comment on its plans for investments in the companies.
“The PIC believes that unsecured lending is not bad in its own right – it has a role to play in the South African economy,” Masilela said.
“However, this objective can only be sustainably achieved through adherence to a strict discipline in the sector that is set and enforced by the regulators.”
Since November last year, the National Treasury, the National Credit Regulator and the Banking Association SA have been working to develop rules to assess a consumer’s ability to afford a loan and how to recoup a loan. The regulator published draft guidelines for lenders last month.
“Promisingly, with the moves by the regulator to try and rein in on these errant practices of the industry, we believe it will be brought back into line,” Masilela said. – Bloomberg