How we borrow money in South Africa

A report published earlier this year showed that South Africa ranks as the top country in the world for loans taken out.

Rising fuel prices, a shot currency, rising interest rates and a lack of jobs, together with a stagnant economy already points to a bleak festive period for millions of South Africans, many of whom are already deep in debt.

According to data from the World Bank, on average, two in five people around the world took out a loan in 2013-14, with South Africa being the world’s number one country for people needing loans – 86% of adults in the country took out loans during that year.

As many as half of 19 million credit-active South Africans have impaired credit records, three months plus in arrears, while 15% are described as debt stressed, one to two months in arrears.

Only 23.42% of South Africans have any money left at the end of the month- the other 76.58% are flat broke, according to Debt Rescue.

Read: 7 things you need to know about debt in South Africa

According to data published by the South African Institute of Race Relations, the type of credit extended by formal financial institutions shows that while levels of vehicle and
home financing have increased by 33.3% since 2007, the levels of personal loans and overdrafts have increased by 100%.

“This is a warning on the possible over-extension of households which will be compounded by interest rate hikes,” the IRR said.

Formal credit assessedIt noted that household debt to disposable income in the country has risen from 56.5% in 1994, to 78.3% in 2014, although down from a peak of 82.4% in 2008.

Change in formal creditThe IRR pointed out that 90% of credit is secured. The majority of this is in the form of mortgage loans with the balance coming from other forms of secured credit.

Total outstanding credit“However, the data also shows that the rand amount and proportion of total credit that is unsecured has roughly tripled since 2009,” it said.

This, the institute warned, is a flickering red light over South Africa’s economy particularly in a decade that is likely to see sharp interest rate hikes.

Total outstanding credit graph

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How we borrow money in South Africa