Bloomberg News

South Africa to Combat Illegal Lending Blamed for Stoking Unrest

October 11, 2012

South African Trade Minister Rob Davies pledged to crack down on loan sharks who are violating credit laws and fuelling a wave of recent labor unrest.

“We are seeing practices that are at the very least verging on being highly reckless,” Davies told reporters in Cape Town today. “We are going to redouble our efforts and crack down on this. The message to anybody who is engaged in these practices is you are taking a risk because we are after you.”

Ten out of 12 credit providers raided on Oct. 9 at Lonmin Plc (LMI)’s Marikana mining complex, where a strike began on Aug. 10, appear to have been acting unlawfully, according to the National Credit Regulator. As many as 46 people died before Lonmin agreed to wage increases of as much as 22 percent, while the illegal labor action has spread to other platinum and gold mines.

With more than 16 credit providers operating in Marikana, many miners took on loans with interest charges of as much as 30 percent that they struggled to repay, resulting in the lenders making deductions directly from miners’ salaries, according to the regulator.

“We have been hearing quite a lot of people saying that a lot of the pressure on wage demands is arising from the fact that many ordinary workers, low-income people, have very high levels of consumer credit,” Davies said. “Reckless lending is having a negative impact on our society, on our working people, on low-income communities. People are being enticed into taking loans under difficult circumstances and those loans don’t solve their financial problems, they actually worsen them.”

Unsecured Loans

The National Credit Act, introduced in 2006, aimed to reduce so-called reckless lending and protect borrowers. In the past three years credit providers have increasingly offered unsecured loans to low-income earners to maintain and boost profit margins.

The effectiveness of the law is being investigated and it will be tightened if necessary Davies said.

Consumer loans in South Africa amount to 1.3 trillion rand ($149 billion), of which 9 percent is unsecured, said Nomsa Motshegare, the credit regulator’s chief executive officer.

“We have got 19.6 million credit-active consumers,” Motshegare told reporters in Pretoria. She said 49 percent of them are “impaired” and the share has been growing.

To contact the reporter on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net;

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net


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