Hearings on increase in bank transaction charges & activities of small loan organisations

Meeting report

TRADE & INDUSTRY PORTFOLIO COMMITTEE
3 March 1999
BANK TRANSACTION CHARGES & MICRO-LENDERS: HEARINGS

Documents handed out:
Association of Independent Micro Lenders
Black Sash, Knysna
Consumer Institute of South Africa
Micro Lenders Regulatory Council
South African Catholic's Bishops Council
Consumer Institute of South Africa

MINUTES
Consumer Institute of South Africa
Their submission focused on the activities of the small loan organisations.

They referred to the amendments of the Usury Act introduced by Derek Keys in 1992 which exempted certain categories of money-lending transactions, namely, amounts less than R6 000 to an individual. What this means is that the micro-lender does not need to disclose interest charges for such a sum.

The microlenders provide loans to thousands of people mostly desperately short of money who do not qualify for credit or do not have access to the formal banking sector.

The number of micro-lenders has grown to about 30,000 formal outlets with a total turnover of more than R10 billion.

The borrower usually gives up his ID book, ATM card and number

The problem is that some people can be charged interest rates of up to 36% per year. The reason given is the risk factor in lending to this sector.

On the question of the banking sector they made the point that women's rights issues need to be looked at as well. A housewife may not be able to open an account even if she has the minimum amount because she cannot show her income. She would need her husband's signature for this.

They also made the point that transaction costs are too high. You need to have a minimum of £4000 in your account to qualify for free banking.

Black Sash, Knysna
Their submission looked at small-term lending which plays an important role in giving credit to a large number of poorer people.

Their advice office has lots of complaints from poor clients having trouble with the money-lending industry. This is not an appropriate avenue for providing credit to the poor. Their clients are usually caught in a terrible debt trap when they approach them for help.

People now are borrowing for current consumption and not for capital expenditure such as consumer durables.

People with backdated welfare cheques are not able to open bank accounts to access their money.

Black Sash called for an independent enquiry into the money lending industry for adequate measures to be put into effect for consumer protection against their exploitative practices.

They asked the Department of Trade and Industry (DTI) to explore options other than money lenders in order to increase access to credit for the poor or the 'unbanked'.

Alliance of Micro Lenders Association
They claimed to investigate all complaints made very thoroughly. Their organisation aimed to improve standards in the lending industry though better work practices and education.

Catholic Bishops' Conference
They made the point that churches now have to pay bank charges when they bank their weekly collections. Previously this did not happen. They stated that there needed to be alternative community credit schemes.

B. Turok (ANC) suggested that the church investigate taking away their account from a particular bank. In Gauteng the Provincial Legislature had warned their bank on this because of their gender practices and lack of transformation.

The presenter replied that this would be more difficult for the church because different congregations are autonomous in these matters.

Association of Micro Lenders
They owed their existence because of the inability of banks to deliver the service. Their average loan was about R750. As they were a high risk industry, the expectation on return of money should be higher than average. He suggested there are only 2000 formal lenders and not the high figure given by the DTI. Their organisation has a code of conduct and tries to eliminate sharks. They have brought out a members' manual on what people should or should not do.

Association of Independent Micro Lenders
The presenter asserted that the whole industry has been white dominated. This organisation represents 2 000 members and that meant 1.2 million consumers. There was no organisation which represented all the players in the micro-lending industry. However they were trying to co-operate and have meetings together.

Conclusion by Chairperson, Rob Davies MP
He suggested a small working group be set up from the committee together with a researcher who had been working closely with them.

It was clear front the evidence that changes are needed in the formal banking sector. There were so many different charges for banking transactions and it was clear that a disproportionate amount of these charges fell on people with lower incomes.

There was no doubt that the Banking Council had a poor image.

He recommended changing one's bank if it is not delivering though this applies more to groups than individuals.

A more credible Ombudsman is needed.

The banks need greater transparency and better information must be supplied to clients.

There is a need to look at the question of regulation where self regulation has not worked. The Government too has a lack of resources for regulation.

Legislation reform is needed. There should be some mechanism to cap interest rises.