This is a topic a South African credit expert recently explored. She found there are currently five common problems facing consumers in the credit market. That includes:
- Many active credit consumers have a poor credit standing
- There is very little developmental credit being distributed in the market
- Many credit journeys end in debt distress
- Lenders can behave badly
- There has been a rise in short-term lending to the poor
Poor credit standing
The research found that on average, those consumers who are credit active have an average of 3.1 open credit products. The most common credit products were for retail, and more specifically, clothing. In fact, more people use a store card in South Africa than a credit card.
The proportion of those in arrears on their credit accounts depends on the type of product it is. Very few of those with mortgages or car loans are in arrears while nearly half of those with store cards are in arrears of 90 days or more.
Credit is not largely developmental
Lending activity has shifted markedly over the last few years. Those with higher levels of household income are borrowing more than they used to, with people borrowing more to sustain their lifestyle, so on store cards, credit cards and personal loans. However, the number of consumers borrowing to buy houses and cars has not risen in the same way.
Credit journeys end in distress
Many credit journeys do not end well. The trouble is that many of the credit providers that facilitate entry into the credit market have a higher risk tolerance. Of those consumers that entered the credit market in 2011 and 2012 and still have active credit, around two-thirds are in arrears on at least one product.
Lenders behave badly
More established lenders like the payday loan provider Wonga seem to have learned their lessons from the past and offer a more considered service. It is often new entrants to the credit market that cause more of the problems. Insurance on loans is a real problem, with the NCR uncovering a massive mis-selling of credit insurance.
A rise in lending to the poor
There has been a rapid recent growth in short-term lending to the poor. The microloan has become a particularly popular product over the last few years, with a high proportion of those borrowers on a small income. This has the potential to cause serious problems now and in the future and is one of the leading reasons why many credit journeys end in distress.