Indebtedness is a serious and complex social challenge in South Africa. Earlier this year the South African Human Rights Commission reported that half of South Africa’s credit-active consumers were in excess of three months in arrears.
They described more than eleven million South Africans as over-indebted.
It is difficult, whether due to a lack of assets or to low creditworthiness, for low-income households in South Africa to access formal loans from banks.
Most exposed
Yet low-income households are those most exposed to life’s ups and downs, and those most in need of financing to cover unpredictable events such as illness, accidents, or death. As a result, unsecured lending is thriving.
Micro loans, if properly regulated and conducted, can be useful tools to bridge disastrous circumstances or to finance micro-enterprises. But when Implats turned our attention to the problem of debt amongst our employees, it became apparent that in many cases their ability to manage their debt was being impaired by the actions of predatory or reckless micro-lenders.
An extensive internal audit investigation undertaken on behalf of indebted employees uncovered irresponsible lending practices on the part of 23 money lenders in and around the Rustenburg area. Some of them, masquerading as selling safety equipment, were found to be operating on Rustenburg Impala property, including the residences.
These so-called loan sharks, or mashonisas, are money lenders who target people in financial difficulty. They offer them cash loans at extremely high interest rates: typically between 30 percent and 40 percent, though sometimes higher – in any case, far in excess of the rate stipulated by the National Credit Regulator (NCR). Vulnerable people are ruthlessly exploited and are seldom in a position to take legal action. Once in this cycle it is very difficult to extricate oneself.
In particular, a significant part of the problem turned out to be due to illegal emoluments attachment orders (EOAs). EOAs are court orders used to force debt repayments directly from a debtor’s salary, without anyone necessarily having considered their personal situation and other obligations.
In the cases we identified, Implats approached the courts to protect the rights of our employees. As a result, 370 EOAs have been found to be illegal and the money lenders have agreed not to pursue them further. From January 2014 to July 2015 we managed to have more than R6 million of illegal employee debt written off.
Implats has made detailed submissions to the Chamber of Mines, which is consolidating information on the number and legality of garnishee order issues. It is working with the NCR and Department of Trade and Industry, and providing input on the review of the National Credit Act Amendment Bill. Implats has launched an education campaign to assist employees to avoid, eliminate and manage their debt.
Affordability tests
We have changed our rules around short-term unsecured lending which can result in deductions from salaries, and affordability tests and fixed addresses have become compulsory. Our payroll department now conducts a legality test prior to implementing an emolument order. We are also conducting training on good financial practice and consumer rights. Indebtedness has a deep impact on employees and their families and has been a cause of labour unrest in the mining industry.
The stress of indebtedness can express itself through acute psychological and physiological symptoms, including severe depression. It can ruin marriages, friendships, career opportunities and one's sense of self-worth. It is, however, a cycle which can be broken.
* Mathias Sithole is Group Executive: People at Implats.
** The views expressed here do not necessarily reflect those of Independent Media.
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