South African Bureau of Standards; National Credit Regulator Annual Reports 2006/7

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Trade, Industry and Competition

08 October 2007
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Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
9 October 2007
SOUTH AFRICAN BUREAU OF STANDARDS; NATIONAL CREDIT REGULATOR: ANNUAL REPORT 2006/7

Chairperson: Mr S Rasmeni (ANC)

Documents Handed Out:
South African Bureau of Standards Annual Report presentation
South African Bureau of Standards Annual Report 2007 [available later at
www.sabs.co.za]
National Credit Regulator Annual Report presentation
National Credit Regulator Annual Report 2007

Audio recording of meeting

SUMMARY
The South African Bureau of Standards stated that it had performed well in the past financial year with a commercial revenue increase of 12% and an unqualified audit report. It reported on how it was supporting national and regional imperatives such as positioning the institution for trade promotion in the SADC region and increasing market access for the export of goods. It did report on the need for replacement of aging infrastructure to ensure effective delivery. A further challenge was the smooth exit of the regulatory division.

The National Credit Regulator established in June 2006 gave its first report in the follow-up to the
implementation of the National Credit Act this year. Their report focused on the education and outreach programme for both the consumer, the lender and the courts. It presented some of the milestones as well as statistics about credit indebtedness and law enforcement and interaction with critical stakeholders. The Committee was concerned about the information reaching those who were indebted and the crucial role of debt counsellors for which the NCR currently had no budget.

MINUTES
South African Bureau of Standards (SABS)
Chief Executive Officer, Mr Martin Kuscus, provided highlights for the Standards and Regulatory Divisions of SABS and of their different industry sectors. He noted that SABS had performed exceptionally well in the past financial year with a commercial revenue increase of 12%, a doubling of its publication sales target and an unqualified audit report. He provided details on the ways that the institution was promoting broader participation, equity and redress in the economy such as the training and subsidy scheme support of Small Medium Enterprises (SMMEs), harmonisation of standards in the South African Development Community (SADC) region and its employment equity statistics.
 
He identified the following challenges:
- Broadening its stakeholder base and securing and maintaining interest in standard development.
- Expand services in important markets to support the new industrial policy
- Ensure increased capacity in the SADC region to promote regional integration.
- The current IT system require enormous improvement to ensure adequate functioning
- Need to refurbish aging technical infrastructure, SABS would require at least R30 million investment.
- The issue of skills shortage had not left SABS untouched, there were certain functions which were limping in the organisation because they were performed by few or there was limited expertise.
- The successful exit of the Regulatory Division and smooth management of the transition without compromising quality.

Discussion
Mr S Maja (ANC) asked about the dumping of chemical waste in rural or township areas where Black people reside. He also asked about the views of SABS on the roadworthiness of taxi which transport commuters, whether SABS was able to manage health and safety issues in the taxi industry and if there were any mechanisms to deal with the former. He asked about the monitoring of radiation exposure from mobile telephones. Finally were there mechanisms to monitor and inspect air pollution?

Mr Kuscus replied that environmental enforcement was outside of the SABS mandate. Anything to do with environmental damage was the responsibility of the Department of Environment and Tourism. The role of SABS was to develop standards and the operational oversight lay with other government departments. The issue of roadworthiness also lay outside its mandate but was within the core mandate of the Department of Transport. By default, SABS had got involved in vehicle testing and accreditation but that would soon change due to the new Bill that the Department of Transport had tabled before Parliament. Regarding radiation, SABS was undertaking intensive research on the subject and had sponsored a PhD student to research this with critical stakeholders in the industry. As to the degree of damage, SABS was unable to provide an opinion until the outcome of the research had been officially tabled.

Prof E Chang (IFP) asked if SABS had any feedback system with its stakeholders and whether they had an open channel of communication with the recipients of their services. What were the nature of improvements that had been proposed through the system. She also asked if senior management were on three or five-year contracts and whether the latter influenced performance and meeting their deliverables.

Mr Kuscus replied that its internal system was extremely strong in soliciting information from various stakeholders on the improvements that were required in the provision of SABS services. SABS had established various boards that greatly assist the institution in gathering industry developments. Institutional performance was a standing agenda item in executive management meetings. In terms of senior management contracts, he agreed with Prof Chang that if the contract was only three years, it created a lot of uncertainty and affected the ability to deliver and might be a serious inhibiting factor. SABS had a performance management system and failure to perform would either lead to dismissal or measures being applied.

Prof B Turok (ANC) commented that in rural areas, there was no compliance with any standard whether it was food or roads etc. There was an appalling lack of standards. Was there a role for SABS in such environments?

In response, Mr Kuscus indicated that standards were about quality of life and SABS had not been very successful in permeating that message throughout the country, specifically in rural areas, for various reasons. But the messaging entirely depended on partnerships and closely working with other economic development agencies in particular. For example, Makana Municipality had subjected itself to scrutiny and once standards were appreciated at the highest level, it was not a complex exercise to integrate them into the organisational culture. He added that unfortunately in South Africa there was a weak consumer culture.

Mr S Njikelana (ANC) expressed his gratitude to SABS for attaching importance to regional integration and he asked if SADC countries were making a meaningful contribution in standardisation to improve export and imports. He asked about the cost implications of the IT infrastructural upgrades.

Mr Kuscus replied that there was very little contribution due to limited expertise and lack of capacity. SABS had been undertaking training programmes jointly with other SADC countries so that they could share knowledge and improve their country’s adherence to standards. If SABS were not playing an active role in enhancing the capacity of the regional countries, this would stifle export growth and free trade in the region. The cost of upgrading the IT infrastructure was approximately R30 million.

Dr P Rabie (DA) commented that the sulphur content in the generation of electricity was substantially high, and he wondered if there were global benchmarks in the production/generation processes of electricity.

Mr Kuscus replied that
there are a number of economic activities that are contributing to air pollution, like cars, but the car population in South Africa is smaller in comparison to Europe and SABS is aware of the high content of sulphur in electricity generation. Since there are other activities that are generating less air pollution in the country, it is not an issue to be worried about yet. In addition SABS is undertaking an intense research to fully understand the impact on air pollution so that the inspection can be effective. But a balance would have to struck between the public interest and economic activities without compromising either.

the South African car population was relatively small in comparison with countries in Europe. SABS would have to strike a balance between public interest and economic imperatives or priorities. The balance limited the exorbitant production cost.

Mr Rasmeni asked about the number of SMMEs that were trained by SABS, the provincial location and whether there were any that were accredited. He also asked if in the SABS training or workshops, there was any rural bias. Finally, he sought an explanation on the condoms that had bypassed the testing process, that were now being recalled from the public domain.

Mr Kuscus replied that the SMME support was in conjunction with other government departments even though SABS had a specific enterprise development programme which focused on SMMEs that were exporting to Europe. Regarding the testing of condoms, the matter had been reported to the Department of Health and the matter was vigorously being pursued and was at an advanced level. The incident was based on human error and SABS had visited all the sites to assess the production processes of those companies that were producing condoms.

National Credit Regulator (NCR) Annual Report 2007
Mr Gabriel Davel, CEO, introduced his team who constituted Mr Peter Setou (Senior manager, Education & Strategy), Ms Yvonne Radinku (Member of the Board of Directors) and Ms Nomsa Motshegare (Chief Operations Officer). He noted that the presentation focus is from the 31 March 2006, but that his verbal comments would include the period after 1 June 2007 when the Act came into effect. There was a broad range of expertise on the NCR board, the committees were functional and have been in various board meetings.

Mr Davel noted that the registration process for credit providers began with provisional registration which gave them time to review the documentation delivered by the providers. There had been
3 968 credit providers with 19 574 branches provisionally registered by 31 March 2007. Eight credit bureaux were fully registered and 51 debt counsellors had submitted applications for registration He pointed out that one percent of credit providers provided 99% of the credit and 99% of the credit providers produced 1% of the credit. As of September 2007, 89% of the providers were fully registered. The outstanding applications for registration were primarily those of creditors from the “small” category which required much follow-up because of incomplete documentation. He stated the NCR was making progress and there was no major concern about the registration process.

He said that a major challenge faced by the NCR was how to address consumer education and awareness. C
reating a high level of awareness of consumer rights prior to the effective date of relevant sections of the Act would had been counter-productive. They had therefore focused on incremental awareness on the general content of the Act; cautionary messages in relation to over-indebtedness; rights in respect of credit bureau information.  NCR hosted consumer education and industry workshops: 128 consumer education workshops, 32 workshops and presentations on the Act to industry, 37 ‘educational adverts’ were placed, 185 articles on the Act in the print media and 170 radio and 25 TV interviews.

Mr Davel explained the data cleansing of blacklisted consumers by credit bureaus.

NCR had conducted some research and the following were key findings on growth in credit extension: Household credit (by banks) increased by R391 billion over 4 years, that is 135% growth; The bulk of this growth was mortgages, which grew by R270 billion over the period, Credit cards also grew considerably, but amounts remain relatively small … however, an important contributor to debt stress. Consumer credit extension grew faster than household consumption, GDP or growth in formal employment.

Mr Davel reported on important structural changes in the consumer credit market: banks’ credit criteria were becoming more inclusive, credit card income thresholds were lower, there was access to cheaper source of credit than micro loans or furniture finance for low income individuals but these created new risks for debt.
 
Training of magistrates was important. They dealt with approximately 65 000 debt related judgments per month. The National Credit Act was a radical departure from the previous legislation so this would put huge demands on magistrates who had to interpret and apply it in the courts. The Justice College had developed a training manual and implemented a training programme for magistrates. More than 700 magistrates would undergo training during 2007. The experience was an Invaluable contribution to the successful implementation of the National Credit Act.

There was a huge effort in preparing for the implementation of debt counselling, and it remains the biggest challenge of the institution. Mr Davel explained the various initiatives that had been undertaken to facilitate smooth debt counselling. The effective implementation of debt counselling depended on the good will and co-operation of a number of stakeholders, including credit providers, credit bureaus and magistrate courts.

Discussion
Dr Rabie asked if NCR was protecting consumer who were reckless borrowers. The introduction of NCR regulations only focused on enforcing lenders not to give credit to indebted consumers but exonerated the responsibility of individuals.

The legislation was protecting both the lender and the borrower, obviously with punitive measures applicable to reckless lenders because they carry more responsibility. The consumers were not being protected at the expense of lenders. However once consumers had been identified as living beyond their financial means, they would not qualify for credit until they had demonstrated being responsible borrowers.

Prof Chang asked about the nature of contracts for senior staff members, whether they were three or five-year contracts.

Mr Davel replied that they had contract staff who were hired for specific professional service due to absence of internal capacity and once the transfer of skills had taken place, the contractual agreement with companies that provide contract staff would cease to exist. Currently the majority of staff was permanent and the organisation had a performance appraisal system.

Mr Maja asked if the NCR could present tangible evidence that their education awareness programme was reaching in particular rural communities and township or any other area where poor people resided. In term of debt counsellors, how many were there and were they able to reach out to highly indebted people who required their services?

Mr Davel replied that there was dedicated human capital within the NCR that focused on educating Non Governmental Organisations and Trade Unions and such, with a rural focus and township bias because consumers in those areas were targeted by aggressive credit lenders. There was also a strong focus on community-based radio stations and interaction with the traditional leader system in the rural areas. For several months, NCR had co-hosted workshops with various constituency offices.

He said that the issue of debt counsellors was a serious challenge for NCR because they were crucial in the financial rehabilitation of consumers but due to limited financial resources, NCR was unable to incur their fees in the annual budget. So the matter was lingering with no resolution yet. So far, NCR had approved the applications of 50 debt counsellors through out South Africa and the NCR offices had been inundated with applications for debt counselling. The debt counsellor interacts with the consumer and by law they could submit a proposal to court which was called an insolvency plan for the individual consumer. The later was due to the fact that there was no personal bankruptcy legislation which declared a consumer bankrupt, so debt counsellors were filling the void.

Mr L Labuschagne (DA) asked if the sample case mentioned in the annual report of a consumer who lived beyond his means, was fictitious of real. He asked about the punitive measures applied to reckless lenders and the role of the debt counsellor, whether the latter would eliminate the problem of reckless borrowing. He commented that the growth of mortgages was symptomatic of a healthy economy because it was a significant indicator that citizens were buying their own homes and they were not a burden to the state. Why was the latter a concern for NCR?

Mr Davel replied that the credit case in the annual report was not fictitious, it was a real case. There was a penalty that could be imposed on reckless lenders by a court of law, not the NCR. The issue of debt counsellors was a serious challenge for NCR because they were crucial in the financial rehabilitation of consumers but due to limited financial resources, NCR was unable to incur their fees in the annual budget. So the matter was lingering with no resolution yet. So far, NCR had approved application of 50 debt counsellors through out South Africa and the NCR offices had been inundated with applications for debt counselling. Debt counsellor interacts with the consumer and by law they could submit a proposal to court which was called an insolvency plan for the individual consumer. The later was due to the fact that theres no personal bankruptcy legislation which declares consumer bankrupt, so debt counsellors were filling the void. The role of debt counsellors could eliminate the problems of reckless borrowing. The issue of purchasing of mortgage was in principle not a problem but the inability to maintain the debt was of serious concern.

Mr Njikelana asked if the NCR had observed any changes in the credit behaviour of consumers and whether NCR had data on urban-rural representivity of credit providers. He asked if the increase in mortgage sales had any impact on money circulation. He expressed concern that the training in the judicial system seem to be focusing only on magistrate, not prosecutors. The number of people that were heavily indebted (300,000 people) seemed to be high for a developing economy, and he suggested that a platform be created to educate Members of Parliament as public representatives on credit issues, sharing information on these developments. Did the NCR have a plan for raising its own revenue? 

Mr Davel replied that consumer education was a process, the impact would entirely be influenced by various elements. The social dimensions were key in determining the response of the consumers to education campaigns. But the automobile industry had severely been affected by the introduction of the law. The demand for cars had declined sharply due to longer scrutinisation of applications by financial institutions. The NCR had not segmented the current data but indications were that most of the credit providers were based in urban areas.

He said that magistrate form an important component in civil cases (judgements) and prosecutors had absolutely no role in civil litigation processes so that was the rationale for targeting them in the education process. They had a key responsibility in interpreting the law. In principle, NCR endorsed the suggestion that there should be continual engagement between Parliament and NCR on issues of credit and developments. The Department of Trade and Industry had made a financial commitment to fund NCR but in the long term, the organisation was exploring whether consumers should incur the cost of running the NCR. Currently there were 16 million indebted South Africans and 10% of that was highly indebted and it was a matter of concern.

Mr Rasmeni asked if NCR was undertaking any monitoring of credit providers and taking an active role in inspecting the contractual agreements between the companies and consumers to ensure simplification, proper explanation and making the fine print easier to read. Perhaps NCR should include targeting university students too in their national campaign because they were the future debtors.

Mr Davel replied that NCR was very active in monitoring the implementation of the law and had already provided all the credit providers with a summarised blue print with key clauses in bold. In the event of a case being taken to court, the court would disregard the elements that were not part of the summarised blue print hence the training for magistrates. NCR had undertaken joint campaigns with credit ombudsman with a specific focus on right of consumers, the role of the NCR and the credit amnesty. NCR had also had preliminary discussions with Clerks of the Courts because they interface with magistrates, debt counsellors and consumers, and so were central in the administration process.

In conclusion, the Chairperson thanked Mr Davel and his team and wished them luck in resolving the fee issue of debt counsellors.

The meeting adjourned.

 

 

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