09/07/2015
Do you think the proposal to reduce the interest rates is good news to consumers?
Government wants to slash interest rates in an effort to fight the ever growing overindebtedness in South Africa. The first strategy was to alter the National Credit Act so to introduce more stringent affordability tests. The second strategy involved an ongoing process to stop credit providers from making money through often hidden costs like the high credit life insurance.
The Department of Trade & Industry (DTI) has now proposed to slash interest rates by South Africa’s credit industry. The director-general of consumer & corporate at DTI, Zodwa Ntuli, says “As much as we want people to have access to credit, they must be able to afford it” in City press. Although this proposal is expected to have a bad effect on creditors, it is expected to lighten the burden on debtors. This proposal has however brought mixed responses from creditors but standing from the consumer’s side this could be another step in the right direction. The regulations propose cutting the maximum interest rates applying to unsecured credit transactions. According to the City Press article unsecured loans are set to go down from 32.65% to 24.78%.
The National Credit Regulator’s spokesperson, Lebogang Selibi, explained that this proposal is informed by “the growth of unsecured credit agreements over the past few years, the current levels of consumer overindebtedness and the reckless behaviour of some lenders in extending loans to consumers who cannot afford them.”
Hennie Ferreira who is the chief executive of MicroFinance South Africa (MFSA), however, thinks that the regulations will affect the poor adversely “By making credit cheaper, you do not improve access to credit for high-risk consumers. The opposite happens. You make it more affordable for people with security and low risk. Price is a reflection of risk. If you bring down the cost of credit, only the privileged and the elite will enjoy access to cheap credit. If credit is too cheap, you can’t provide for write-offs. You have to price for risk and the cost of doing business”. MFSA has since requested a meeting with DTI.
Thandi Nhlengetwa , chief executive, of Thembeka Debt Counselling Services , applauds this proposal as a step in the right direction and very good and welcome news for the millions of South African consumers who are cash strapped and in particularly those who are over indebted.
A reduction in the maximum interest charges will mean extra cash in the pocket of the consumer and a faster repayment on credit agreements. Interest on unsecured loans have been very high leading to a high rate of over-indebtedness due to the fact that consumers at times service only the interest and very little goes towards the reduction the outstanding capital debt.
