We rarely have occasion at Noseweek to borrow an editorial from another, competing publication. This is one such occasion: we cannot think of a better way of saying it than Patrick Cairns has done recently on Moneyweb:
Unsecured lending in South Africa has always had its detractors. Since 1992 when an exemption to the Usury Act was first granted to allow microlenders to operate legally, there have been people who are uncomfortable with the practice.
It doesn’t take much to argue that, ultimately, the business models practised by microlenders in South Africa are exploitative, degrading and profoundly negative in their impact on the economy. This is a sentiment that is not limited only to lenders like African Bank either. The unsecured lending industry also feeds another that is perhaps even more morally suspect – one that is most prominently represented by Cambist, a company that promises South Africans incredible returns of 19.5% per year.
How do they do that? By facilitating the sale of debt of unfortunate individuals who have failed to repay unsecured loans and have suffered the indignity of having garnishee orders granted against them. (These are court orders that allow creditors to attach a portion of someone’s salary. The employer is obliged to pay the creditor directly to ensure that the funds are received.)
Anyone with money on the Cambist platform is effectively collecting their 19.5% on the misfortunes of the poor. There is nothing economically uplifting about this. It is only making poor people even poorer.
It’s not enough to argue that the borrowers made their own bad decisions. By its own admission, African Bank has not been strict enough in its lending criteria. It has lent too much money to people who had little hope of ever paying it back.
What reason would it have for doing that, other than greed? There is a clear link between this reckless lending and what Cambist is doing, because the more risk lenders take in their writing of loans, the more likely borrowers are to default. And with garnishee orders being granted, that means more business on the Cambist and other similar platforms.
Whichever way you spin it, it is an appalling exploitation of the poor.
It is made even more unpalatable when you consider the way that Cambist markets itself. A recent Twitter post from Cambist reads: “They say it’s better to cry in an expensive car than on a bicycle… what do you think?”
What solace is there in an expensive car bought with the 19.5% per annum earned off someone who can hardly afford a bicycle?
This sort of thing only highlights the ethical failure in the entire microlending cycle. It is not, and has never been, about uplifting the poor. It has been about how much money can be made off them.
Can we be proud of a country where the exploitation of the poor is sold as a means to buy yourself a nice car?
Cambist will argue that it is not doing anything illegal. It’s a matter of willing buyers and willing sellers. The assets in question, it will say, are debt contracts. Isn’t that what is traded on the bond market every day?
But that ignores what we are actually dealing with, because behind those debt contracts are human lives. There are people trying to make an honest living, feed their families and improve their lot in the world.
► Over the years Noseweek has highlighted the problem in various reports, see nose44 (Loan sharks or bankers); nose86 (Thieves dance the Limpopo polka) and nose100 (Juicy Saambou pickings for African Bank).
► Read the article on Moneyweb.
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