Despite very vocal opposition from the credit granters, parliament last week approved in principle a second debt amnesty programme for South Africa. The aim is clear: debtors who have paid back their debts must be removed from the black-lists. Period. While the intentions are noble, the devil remains in the detail. We will have to wait for the programme to be gazetted to find out which of the three ring-fence scenarios presented will actually be implemented.
Detractors of the amnesty point out that lessons learned from the previous amnesty in 2006 haven’t been heeded. Industry reports indicate that the majority of those who benefited from the first amnesty have again ended up in a debt trap of some sorts. They cynically point out that it is nothing but a political tactic in the run-up to the 2014 elections. Voters don’t bite the hand that feeds them, so to speak. The Business Day editorial sums this up nicely: “A blanket amnesty is a short-term, populist band-aid that will not solve the underlying problem — people are being granted loans they cannot afford to repay. “
As always there is the contrasting view and for a welcome change it’s not only the government that is putting forward the upside. Moneyweb’s Sipho Ncobo’s opinion is that the lenders’ reaction is an unnecessary uproar that has sparked pointless controversy, and is plain dishonest. He writes about the “life sentence” of bad credit records, the nightmare of trying to have outdated information removed and the millions of people who struggle to get traction in the economy due to some historic issue way back when.
Trade and Industry Minister Davies says that this will force the lenders to do proper affordability tests and not just rely on “outdated and misleading” historic information kept by credit bureaux.
The National Credit Regulator (NCR) company secretary Lesiba Mashapa, also supports the amnesty: “We believe it is the right intervention.” He points out that the regulator will soon publish affordability assessment guidelines, which when coupled with payment profile information which will not be removed, will allow for the proper assessment of risk.
Overall the challenge remains to stamp out reckless lending and to boost economic activity by assisting an estimated 1.6-million consumers struggling to get loans, accommodation and jobs due to adverse historic credit records despite having repaid their debts.
Our view at RentMaster leans towards the positive responsible lending strategy. As the pioneer of guaranteed rental collection in South Africa, we have learned our own lessons over the last 10 years about how best to deal with people in financial distress, how to manage our own credit risk and how to work with our industry partners in building a knowledge base of good and bad behaviour.
While we do make use of credit scoring and historic default reports provided by the bureaux, this makes up a relatively small part of our robust tenant screening process. We place a lot of value in the tenants previous rent payment history kept in the widely-supported Tenant Profile Network, and then very thorough employment reference and affordability checking.
Founder and CEO