Need for short-term credit increases among most vulnerable

Short-term credit extension — loans with values under R8,000 that are repayable within six months — increased in Q2, suggesting increased demand for credit advanced outside the formal banking system by individuals and institutions, a survey found.

The Altron Fintech Shortterm Credit Impact (Afsci) index, released on Wednesday, showed that short-term credit extension increased 9.9% in Q2 compared with Q1, and is expected to rise 0.9% in Q3.

Afsci economist Keith Lockwood said while short-term credit makes up a small share of total consumer credit, it is a barometer of the financial health of a vulnerable, and often neglected, portion of SA’S population, and it also provides finance to microbusiness for working capital and stock and asset purchases.

“It also is generally advanced outside the formal banking system by individuals and institutions using their own capital

— rather than the deposits of their clients and provides firsttime access to credit to many people who have never had access before,” he said.

The index, based on National Credit Regulator (NCR) data, tracks the impact of short-term credit extension on the economy and examines the performance of these markets in the second and third quarters.

It is used to assess the impact of changes in short-term credit extension on sales, employment and tax collections in the wider economy and provides additional information to researchers on who can access this form of credit and what they use it for.

Lockwood said it is worth emphasising that lower-income households access a substantially higher proportion of short-term credit than other forms of credit, simply because short-term credit is relatively more accessible.

“This is due in part to shortterm lenders operating within local communities and being able to use their personal knowledge of applicants to assess the risk of default in ways that are different to the more rigid risk assessment criteria applied by commercial banks,” he said.

Short-term credit only makes up 0.1% of the composition of gross debtors’ books out of a total of R2.19-trillion.

Data shows that in the year to end-june 2022, the total value on consumer credit increased by R10.5bn, with positive contributions by all credit types except developmental and short-term credit.

Of this increase, 43% was because of an increase in unsecured credit, with a further 33% from credit facilities and 19% from secured credit.

Mortgages accounted for 9% of the growth, while short-term credit made no discernible impact and developmental credit made a negative contribution of 3%.

Lockwood said in the year to the end-june, the value of the short-term debtors’ book decreased by R90m to R1.86n.

“This was the result of both a decrease in the value of new loans advanced as well as an increase in the value of loans repaid or written-off,” he said.

He added that since the end of 2015, the value of short-term loans outstanding has trended lower from a peak of R3.6bn to less than R1.8bn at the height of the Covid-19 level 5 lockdown in the second quarter of 2020.

Data shows that the average value of a short-term loan with a term of up to one month was R1,906, up R48 (2.6%) from a year earlier. The equivalent averages for loans with terms of two to three months and those four to six months were R2,940, down from R3,180 at the end of 2021 and R4,208, respectively.

Data also shows that people with a monthly income of R15,000 and more accessed 87% of the total consumer credit advanced, while those with an income below R10,000 only received 7% of the credit extended.

By contrast, people earning more than R15,000 per month received 44% of the short-term credit advanced, while those earning less than R10,000 per month accessed 40% and those with monthly incomes of R10,000-R15,000 received the remaining 16% of short-term credit.

People with monthly incomes of R5,501-R7,500 accessed only 2% of total credit, while those with incomes R3,500 or less received 7% of short-term credit.

While short-term credit makes up a small share of total consumer credit, it is a barometer of the financial health of a vulnerable, and often neglected, portion of SA’S population