Breaking women’s debt trap through responsible early access to wages
Payday loans are becoming big business, pretty much everywhere you turn are small shops offering you an advance against your payslip – usually at an exorbitant interest rate. Very often, these types of loans trap people into a spiralling debt cycle, one it can be extremely hard to break out of.
Paymenow, a Stellenbosch-based fintech start-up, aims to help people out of this situation with its offering, which provides a responsible way for employers to provide their staff with early access to wages.
Founded a year ago, Paymenow is coincidentally celebrating its birthday in the same month that women across the country are meant to be revered.
However, micro loans, often peddled as salvation, trap many women, especially those in rural areas, into a debt cycle that’s hard to break out of.
Earlier this year, the New York Times wrote that, in Jordan, an unregulated microloan industry offers easy money. But with no way to repay loans, many women end up buried in debt, or in prison.
Locally, the situation is not that much different, except that the National Credit Act placed a cap on the interest rates that can be charged, limiting the overall amount of debt someone can get into.
For many, however, payday loans are still seen as a salvation as they offer just enough for many to make it to the end of the month, extortionate interest rates or not. And, as that interest mounts, so do the unintended consequences and cost to the economy.
In India, as Aljazeera reported, a vicious debt cycle has forced many women in Maharashtra state's Amravati to take their lives as a farming crisis that started decades ago has yet to end. These female farmers borrow to fund supplies, but are then unable to refund the money.
In Bangladesh, high rents have forced garment workers in a cycle of debt, while mothers in Guatemala use homes as collateral to send their children to greener pastures.
The debt scourge that affects the women who try so hard to make ends meet, put food on the table, clothe and educate their families is not something that’s discussed, or even considered. It’s not an item that is likely to make headlines the way gender-based violence is. But it’s real, and it’s incredibly harmful.
Breaking the cycle - responsibly
One way to try to break this cycle is through responsible early access to already-earned wages, says Paymenow MD Deon Nobrega.
“Paymenow partners with employers to allow staff to access salary advances; small amounts that will make all the difference when staff come up short before payday arrives.”
“The data we have gathered over the last six months of being live, has validated our hypothesis that money advanced versus money borrowed is treated far more responsibly,” comments Nobrega.
“The average cash out amount to date on our platform is around R350 just over 1.5x times per month. With our average user earning around R5500 per month, this equates to around 10% of their earnings in a month, which again validates the responsible manner in which people utilise our service.”
“Paymenow, which makes its money through low transaction and service fees, helps South Africans out of the debt cycle by being a more cost effective source of money than loan sharks (mashonisa).
When employees seek an advance of R1,000, Paymenow charges R50. In comparison, a similar payday loan in terms of the National Credits Act’s fee structure equates to R280 in fees,” Nobrega says.
“By offering very reasonable fees,” says Habana, “which employers sometimes cover, women can work their way out of the debt trap, because they now have more cash available. In addition, Paymenow uses gamification to teach and encourage positive financial behaviours, helping users to manage their money more effectively over time.”