South Africa – Debt is a plague among both rich and poor, developed and developing nations, and it afflicts particularly those who have been deprived of basic financial education. Acutely aware of the devastating effects of over-indebtedness especially among lower-income earners, the Micro Finance Regulatory Council (MFRC) launched a pilot Debt Relief Programme on behalf of the DTI to deal with the problem. Peter Setou, Education and Communication Manager, described its operation and objectives.
?Firstly, the aim is to assist over-indebted consumers to reduce their debts to manageable levels, secondly equip them with financial information which will help them to balance their budgets and finally, to rehabilitate them, changing their behaviour to encourage them not to incur excessive debt in the future.? According to Setou, the programme has experienced success exceeding expectations and has enjoyed enthusiastic feedback from participants. The pilot programme was conducted in Pretoria, Johannesburg, Vaal, the West Rand and Knysna.
Consumers on the programme were required to sign a ?social contract? indicating their determination to stick with the project and co-operate fully with the service providers carefully selected and appointed by the MFRC to act as debt counsellors. These service providers already had a record of providing free consumer services, were familiar with consumer protection and possessed a legal or paralegal background.
Consumers provided a comprehensive financial record of their indebtedness, including payslips, lists of all loans and monthly repayments, together with account statements. Once all these details were verified, service providers were able to commence negotiations with creditors, together with the consumers themselves. These discussions were aimed at reducing payments to levels which decreased unmanageable financial burdens on consumers. ?Creditors are generally amenable to such arrangements,? explained Setou, ?since the alternatives, such as debt administration are not always the answer given some of the pitfalls prevalent in the abuse of administration orders.
The programme has provided the MFRC with invaluable information on the debt profile of those who participated. It included some fascinating insights. ?We found, for instance that the 35-44 and 45-59 age brackets were the biggest culprits,? commented Setou. ?This appears to indicate that over-indebtedness is correlated to age and economic activity. And from this we deduce that access to credit is a major contributory factor.?
Not surprisingly, men incurred almost twice as much debt as women. ?This might sound contentious, but generally women tend to be more cautious than men in dealing with money and also have less access to credit.?
What was particularly interesting however was the nett income distribution of those suffering from excessive debts. The worst affected was the group earning between R1 500 and R3 000, while the least affected were those earning R10 000 and above. The type of employment also had an impact, with those working in the retail sector incurring the greatest debt, closely followed by civil servants and the unemployed.
?We found that micro-loans and retail are the two major contributory factors to over-indebtedness in all areas,? Setou summed up. ?We are now researching the reasons which lead people to over extend themselves with credit. Obviously, this is the root problem behind over-indebtedness which needs to be addressed. This will also inform of future interventions to be put in place.
