New report indicates high level of reckless lending in South Africa

 ·7 Sep 2018
Debt drowning

Data published by DebtSafe, through its Reckless Lending Indicator, shows that as much as 40% of all credit from South Africa’s top 10 providers appears to be reckless.

The report is based on 5,591 credit agreements from the country’s top credit providers for the period April to July 2018.

“The analysed data of the top 10 credit providers, based on agreements that appear to be reckless, suggests that the ‘big’ credit providers are playing a major role in the reckless lending environment in South Africa,” DebtSafe said in a statement.

DebtSafe stressed that it uses the terminology “appears to be reckless“, because the majority of credit providers did not comply with its investigation requests, despite numerous attempts. Because of this, its findings are based on the information it had at its disposal.

Among the top 10 credit providers, FNB and Capitec lead on both fronts – with FNB accounting for the most cases of apparent reckless and non-reckless lending, followed by Capitec.

In what appears to be reckless lending, FNB’s 271 credit agreements make up 12% of the 2,255 cases studied, followed by Capitec’s 6.5%. This accounts for 42.5% and 39.3% of assessed agreements at each bank, respectively.

The tables and graphics below outline the cases of what appears to be reckless and not reckless lending among the leading providers.

Appear to be reckless

Appear not to be reckless

Top 5 banks

DebtSafe said that the purpose of the National Credit Act is to maintain a responsible credit industry, and it introduced two concepts to manage this.

This first is over-indebtedness – when a consumer can’t pay for their essential living expenses due to excessive credit obligations – and reckless lending – when credit providers grant or extend credit to consumers who can’t afford it.

“It is deemed a responsibility of the credit provider to ensure that when credit is granted, it is done in a responsible manner to avoid both over-indebtedness and reckless lending,” the group said.

“It is shocking and scary to know that consumers can pave their way to over-indebtedness with just three clicks using modern-day technology. These days it is all too ‘normal’ to not only apply for credit but to also get it approved within a few seconds. The concerning question here is: does the credit provider conduct a thorough affordability assessment to make sure that the consumer can keep up with the agreed upon payments?” DebtSafe said.

According to Michael Bowren, CEO of, his company is often approached by indebted South Africans with four or more outstanding loans.

“They come to our site seeking additional loans and apply at numerous financial institutions hoping that one will accept them. This is a clear sign of financial stress; the financial companies notice this and it counts against the applicant when the bank performs an affordability test,” he said.

Only 18% of Fincheck users actually qualify for personal finance, he said, with the remainder of the applicants failing based one or more of the following reasons:

  • They are over indebted and do not have enough disposable income;
  • Do not pass affordability tests;
  • Are too young or old;
  • Do not yet have a credit score.

“Many users are paying around 70% of their income towards repayment of loans. We find that most of our users have a ‘just below’ good credit score.”

Read: These are the South Africans who could have their debt written off under the changed credit bill

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