Helping Sandton understand credit better
Experian hosted a roundtable presentation on World Credit Day.
Bryanston-based credit bureau a data company Experian hosted an intimate roundtable session on October 19 in celebration of World Credit Day.
Head of commercial strategy and innovation at Experian Africa, Jaco van Jaarsveldt, enthusiastically delivered the keynote, which addressed the situation within the domain of credit in South Africa.
“Our drive to create financial inclusion is a multifaceted approach for addressing some of the economic challenges that we’ve seen in the country post-Covid,” said Van Jaarsveldt, explaining how credit works. “Historically, in order to get credit, you needed to start a credit record; you started with a retail account, [then] you built up a credit record. Then, your credit score only got created after you got credit.”
Types of Credit
- Secured Credit (where there is an asset against which the loan is secured, e.g. a house or a car.)
- (Secured credit typically relates to high disbursement amount per product, so that a form of security is required by the lender to provide them with a way of limiting their risk.)
- Unsecured Credit (where there is no underlying security associated with the loan, e.g. a credit card or a personal loan.
Characteristics of Credit before Covid-19
- Credit had lower limits
- Credit was easier to maintain;
- Credit was positive in building a credit record
Since Covid-19, however, both banks and retailers have significantly decreased the volumes of credit being afforded to consumers.
“There is no more access to easy credit,” Van Jaarsveldt said. “Post-Covid, banks stopped lending to new customers. Retailers stopped lending to new customers. Banks had to continue growing their balance sheets – they started lending to existing customers.”
Credit Market Challenges
- Inflation,
- Lost of living,
- Interest rates going up,
- Fuel price increases
- High demand for credit
- Consumers are under financial distress
- Lenders have tightened their lending criteria
- Lenders grant way less credit than they did historically
Ans Gerber, who is the head of data-insights at Experian in Africa, explained some of the disadvantages of credit.
“Credit becomes a problem when consumers are not able to honour the repayment agreement, they committed to at the time of taking out the credit,” Gerber explained. “If a consumer then lands in the situation where credit commitments cannot be honoured, they suffer a double-blow: Firstly, their credit reputation with lenders is damaged and secondly, they don’t have anything of value to show for the credit they incurred in the first place.”
Glossary
- Credit: money gotten on loan which has to be repayed– often with interest.
- Debit: spending money you already have, usually amassed through services rendered.
- Litigation: legal proceedings (litigation) which follow the hand over process after all other avenues of debt collection have been unsuccessful including letters of demand.
- Debt recovery: process whereby a consumer goes to a Debt Counsellor to request assistance with negotiating alternative repayment terms with lenders, in order to assist consumers in bridging the affordability gap.
Gerber also outlined the process of debt recovery in a simplified manner.
“If a consumer falls multiple months behind the contracted repayment agreement with the lender, lenders often turn to legal processes to recoup as much as possible of the funds they lend to the consumer,” Gerber said. “This means that a consumer is experiencing difficulty in honouring debt commitments due to their monthly income being insufficient to pay for all the expenses they have to honour.”
Related article:
https://www.citizen.co.za/sandton-chronicle/uncategorized/2022/12/22/tenant-credit-scores/
