The consumer credit market in South Africa paints a picture of a country with an extremely diverse population at different stages of economic development, yet interestingly, all demographics still have a lot to learn about their use of consumer credit.
Over the past decade, more than three and a half million South Africans have been lifted out of poverty. The country’s consuming class has grown to more nine million households with private consumption amounting to $150bn. Yet, despite the huge improvements that have been made in terms of the country’s economic development, in terms of the use of consumer credit, the population still has much to learn.
The pressure facing South African consumers
Whether it’s South African consumers that are emerging from extreme poverty or the country’s middle classes, there are a range of economic factors that are currently putting the squeeze on their budgets. Higher prices (with inflation at 3.8 percent for the year to March 2018), low real growth in wages and high rates of taxation are making life difficult for many South Africans.
Whether it’s the new consuming class trying to get by or the middle classes desperately trying to maintain their existing lifestyle, more and more South Africans are having to dig into savings and make purchases on credit to get by.
The growing number of credit customers
Given the economic conditions South Africans currently face, it’s probably not surprising that the number of active credit consumers in South Africa has grown in recent years. In fact, the figures show that two-thirds of the total adult population now use credit. However, there are a number of issues that currently face the consumer credit market in South Africa. That includes:
- Many credit active consumers have a poor credit rating;
- The credit journeys for some consumers end in financial distress;
- Lenders have been known to behave badly;
- There has been a rise in short-term lending to the poor – but is it a hand up or down?
The increasing number of credit options
Much of the consumer debt currently in South Africa is in the form of credit cards, store cards and overdrafts. Rather than through choice, that’s mainly because few other options exist. However, all that is starting to change.
In recent years, there has been an increase in the number of new products hitting the consumer finance market. One example is the recent personal loans from Wonga, which allows new customers to borrow up to R4000 over a period of 4 days to 6 months, whatever suits the consumer best.
More choice can only be a good thing. One of the leading causes of debt problems is choosing to use inappropriate financial products in the first place. As long as consumers know how to calculate the cost of consumer finance and can accurately assess its affordability then the more entrants to the market, the better.
What is your experience of consumer credit in South Africa? What products have you accessed and why? Please share your thoughts in the comments below.