Manuel says unsecured lending is a “form of corruption”

First Banks are Greedy Monsters now unsecured credit is a form of corruption?

Minister Trevor Manuel (National Planning Commission) recently called unsecured lending, micro-lending and payroll lending  just “another form of corruption“.

This was in response to the recent report from Moodeys Rating Agency. Moodeys  stated that because of the high levels of unsecured lending in SA consumers are “more vulnerable to economic shocks“. Meaning that should some sudden expense come a consumers way they will quickly become over indebted.

Following the Moodeys report the Global Competitiveness Index (produced by the World Economic Forum) now rates South Africa of modest importance in the 52nd position (that’s quite low). DTI Minsiter Rob Davies questions the validity and limitations of the index however it is an indication of the global perception of the South African economy.

Moodeys report that much of the money currently being loaned by South Africans is simply to pay off existing debt. This practice of borrowing money to pay for loans is a sure sign of over-indebtedness and therefore reckless credit granting.  Minister Manuel says that much of what is borrowed is also going into paying for things like electricity and food.

It is interesting to see how most banks have now started to curb their unsecured lending frenzy. It seems they may have run out of consumers who can actually afford to borrow more funds. At present the DTI and NCR are trying to get more comprehensive affordability evaluations used by creditors and they wish to see a buffer amount of the consumers available funds set aside for unplanned expenses. There has been a suggestion of 25% of funds left over after monthly expenses. This will greatly reduce the amount of unsecured lending that could then be granted.

Debt Counsellors have been consulted in creating the proposed evaluation guidelines.