Urban working class credit usage and over-indebtedness in South Africa

Journal of Southern African Studies

Volumn 33, Issue 1, 2007, Pages 107-131

  Hurwitz, Ingrid ^a   Luiz, John ^b  

^a UNIVERSITY OF THE WITWATERSRAND   (South Africa)

^b UNIVERSITY OF JOHANNESBURG   (South Africa)

Author keywords

[No Author keywords available]

Indexed keywords

CONSUMPTION BEHAVIOR; CREDIT PROVISION; DEBT; INCOME; URBAN SOCIETY;

AFRICA; SOUTH AFRICA; SOUTHERN AFRICA; SUB-SAHARAN AFRICA;

EID: 33847353285     PISSN: 03057070     EISSN: 14653893     Source Type: Journal    
DOI: 10.1080/03057070601136616     Document Type: Article

References (49)

1. S. Terreblanche, A History of Inequality in South Africa, 1652-2002 (Pietermaritzburg, University of Natal Press, 2002).
2. UNDP, South Africa Human Development Report 2003 (Cape Town, Oxford University Press, 2003).
3. For a fuller disposition see UNDP, South Africa Human Development Report 2005 (Cape Town, Oxford University Press, 2005).
4. Usury Act exemption from loans under R6,000 in 1992 (extended later to loans under R10,000), allowed microlenders to 'price for risk' for the first time.
5. 'South Africa's Silent Crisis', Mail & Guardian, 1 April 2003.
6. The Rand/USD exchange rate was around R6.50/$ in early 2005.
7. Micro Finance Regulatory Council (MFRC), Media Releases. See http://www.mfrc.co.za
8. T. Manuel, 'You and Your Money', speech by the SA Minister of Finance, Arabella Sheraton Hotel, Cape Town, 20 October 2004. Published online: http://www.info.gov.za/speeches/2004/04102108151005.htm
9. The 'emerging market' of consumers in South Africa is often delineated in terms of the categories employed as shorthand by marketers and advertising agencies - in this case 'LSM 5, 6 and 7s', where LSM stands for 'Living Standards Measure'. These marketing categories are calculated on the basis of variables such as infrastructure access, technology and media usage, access to private forms of transport, and housing types, ranging on a continuum from informal unserviced housing to formal, standalone suburban residences. LSM 5-7, according to the accepted LSM 1-10 definitions, are individuals with personal monthly incomes of between R1,500 (LSM 5) and R4,000 (LSM 7) per month for those who are earning. Distributed per capita income among non-earners has a range of between R457 and R1,376 per adult.
10. A limitation from our perspective is that spending behaviour is approached generically, and not with a view to establishing different rules for different income levels.
11. F. Modigliani, 'The Life Cycle Hypothesis of Saving, the Demand for Wealth and the Supply of Capital', Social Research, 33 (June 1996), pp. 160-217.
12. Also see D. Krueger and J. Fernández-Villaverde, 'Consumption Over the Life Cycle: Some Facts from Consumer Expenditure Survey Data', NBER Working Paper No. 9382 (2002). Available at http://www.nber.org/ papers/w9382
13. J.W. Prinsloo, 'The Saving Behaviour of the South African Economy', South. African Reserve Bank, Occasional Papers, 14 (November 2000).
14. R.T. Froyen, Macroeconomics: Theories and Policies (Upper Saddle River, NJ, Prentice Hall, 1999), p. 287.
15. R. Daniels, Consumer Indebtedness Among Urban South African Households: A Descriptive Overview (Cape Town, Development Policy Research Unit, 2001).
16. D. Collins, Financial Diaries Project (Cape Town, South African Labour and Development Research Unit, 2005). Key findings are available online at http://www.financialdiaries.com
17. A. Deaton, The Analysis of Household Surveys: A Microeconomic Approach (Washington, DC, The Johns Hopkins University Press and the World Bank, 1997).
18. R. Christen, R. Rosenberg, and V. Jayadeva, 'Financial Institutions with a "Double Bottom Line": Implications for the Future of Microfinance', Consultative Group to Assist the Poor (CGAP), Occasional Paper, 8 (July 2004), pp. 1-19.
19. G.A.N. Wright, Necessity as the Mother of Invention: How Poor People Protect Themselves against Risk (Kampala, UNDP/DFID, 1999), pp. 1-14.
20. C.K. Prahalad, The Fortune at the Bottom of the Pyramid (Upper Saddle River, NJ, Wharton School Publishing, 2005), pp. 1-401.
21. S. Rutherford, The Poor and Their Money (Manchester, Institute for Development Policy and Management, 1999).
22. 'Special: Credit Bill', Business Day, 24 September 2004, p. 5.
23. 'South Africa's Silent Crisis', Mail & Guardian, 1 April 2003.
24. 'SA Faces Growing Private Debt Crisis', Business Day, 20 June 2003.
25. Deaton, The Analysis of Household Surveys: A Microeconomic Approach.
26. 'South Africa's Silent Crisis', Mail & Guardian, 1 April 2003.
27. World Competitiveness Yearbook (Lausanne, IMD, 2004).
28. 'SA Faces Growing Private Debt Crisis', Business Day, 20 June 2003.
29. Department of Trade and Industry, The Interest Rate Study (Pretoria, DTI, 2000).
30. Industry specialist interviews, October 2003.
31. M. Eswaran and A. Kotwal, 'Implications of Credit Constraints for Risk Behaviour in Less Developed Economies', Oxford Economic Papers, 42, 2, (April 1990), pp. 473-82.
32. E. Littlefield and R. Rosenberg, 'Microfinance and the Poor', Finance and Development (June 2004), pp. 38-40.
33. A local term literally meaning people who 'cause [one] to sink'.
34. I. Stewart and I. Vaitilingam (eds), Seven Deadly Sins: A New Look at Society through an Old Lens (London, Economic and Social Research Council, 2005), pp. 1-40.
35. S. Collard, Affordable Credit: The Way Forward (London, The Polity Press, 2005).
36. Higher than expected 'bad' debt provisioning announced in November 2002. African Bank raised provisions on book of R6.2 billion to 33 per cent and Nedcor (on BoE and Credcor books) to almost 40 per cent (R1,2 billion book). According to news reports, Nedcor collections deteriorated in 2002 as clients were hit by the interest rate hikes.
37. Late 2002 saw the closure of this book to new clients and the closure of in-store sales channels.
38. Scorecard measures for risk include previous ITC/credit judgments, income and employment status.
39. Ebony Consulting International and the DPRU, Report on Impact of Credit and Indebtedness of Clients (Cape Town, DPRU, 2001).
40. The international norm of loan repayments is 25 per cent of gross income. When the ratio exceeds these norms, or alternatively, when a borrower uses more than 50 per cent of net income for debt repayments, s/ he is overindebted.
41. Daniels, Consumer Indebtedness among Urban South African Households.
42. Collins, Financial Diaries Project.
43. Wright, Necessity as the Mother of Invention, pp. 1-14.
44. Prior to this study, no survey data have been compared with actual repayment profiles and credit bureau data.
45. 'Bad' customers must have missed at least one instalment on their micro-loan product and must be currently in arrears.
46. Given the nature of the sample structure and the fact that there is not much comparative literature to guide us, we have not provided multivariate analysis but instead have relied on bivariate representations to explore the rich results in a qualitative manner.
47. Note: N = 65 for personal loans from bank and N = 18 for micro-lenders. Micro-lenders are not a statistically significant sub-sample.
48. Ebony Consulting International and the DPRU, Report on Impact of Credit and Indebtedness of Clients.
49. SAtoZ, Report to The Finmark Trust The Emerging Market, Available online at http://www.finmarktrust.org.za/documents/2002/DECEMBER/Part2.pptD.