Unsecured Borrowers Migrating Away From Banks To Microlenders
Thanks to the fact that banks are turning away smaller borrowers in droves, the micro lending industry is growing by leaps and bounds.
Dr Eddie Stoop, CEO of the Elite Group (a wholly owned affiliate of AltX listed group African Dawn Capital) and a major player in the micro finance industry said the past six months had been record months for the company with growth in the double digit numbers.
"In large measure thanks to the new National Credit Act but also due to the downturn in the economy, banks have become very weary in dealing with the bottom end of the market. One expert has estimated that up to 80% of smaller loan applications are being turned away by the big four banks.
"The net result is that Elite and other microlenders are all reporting record growth," Stoop said.
Fred Steffers, managing director of the Consumer Profile Bureau, South Africa's most comprehensive source of credit information, confirmed that there had been a substantial increase in credit enquiries from microlenders which would indicate increased turnover by the micro financiers.
The substantial increase in civil debt judgements, personal insolvencies and liquidations coupled to the downturn in the economy had scared many banks away from the unsecured loan sector. In many cases, microlenders had picked up the slack, he said.
Steffers said part of the fall-out of this mounting debt crisis is that banks have become much more careful in granting loans. There has also been a significant decline in the number of successful bond applications because banks have set higher benchmarks for wage and salary earners.
Stoop said despite the perception that microlenders were charging exorbitant interest rates, they were in many instances charging less than the big four banks on short term loans.
"The National Credit Act has regulated the industry to the point where most of the rotten apples had been rooted out and interest rates and the way in which microlenders do business has been firmly defined in the act.
Ross Linstrom, spokesperson at Standard Bank, was earlier quoted as saying that the deteriorating economic environment in South Africa had taken its toll on customers.
With regard to mortgages, Standard Bank said that on average it repossessed two houses per month during 2007. However it has seen an increase in repossessions over the past five months.
ABSA has also experienced a significant increase in the number of vehicles and houses being repossessed. It is expecting a 15% increase in car repossessions for 2008.
House and car buyers are finding it more difficult to find finance from the big banks as are those that are self-employed and seeking unsecured loans. They are in general also paying higher interest rates.
Source: http://www.cbn.co.za/
