The debt relief bill’s impact on South Africa’s society and economy is “net negative”, an independent study commissioned by the government found.
The socio-economic impact assessment was conducted by Genesis Analytics for the Department of Trade and Industry earlier this year. Genesis collected evidence from January to March 2019 and the report was finalised in April 2019.
Members of the sixth Parliament’s portfolio committee on trade and industry were briefed on the socio-economic impact assessment study on Tuesday. The National Credit Amendment Bill was originally drawn up by members of the committee in the fifth Parliament and was assented to by President Cyril Ramaphosa in August.
There has been mixed reaction to the bill, with some economists and analysts warning that it would have a negative impact on the economy.
Genesis’ assessment noted that although the bill seeks to benefit those who are overindebted with debt relief mechanisms, it also has “unintended consequences”, chairperson Duma Nkosi said in a statement following the briefing.
Bill still supported
The socio-economic impact assessment is not mandatory, Nkosi said. According to Nkosi, Minister of Trade and Industry Ebrahim Patel has undertaken to address the unintended consequences and the committee will continue to support the bill’s implementation.
Parliament had passed the bill to address a market failure – the inability of lower income consumers to have access to debt review service through debt counsellors because they cannot afford it. The bill creates a separate review process for a defined lower income consumer segment – those earning up to R7 500 per month, who have an aggregated unsecured debt amounting to as much as R50 000 and who are over-indebted. The process is also called debt intervention and not debt review, the Genesis report stated.
Nkosi stressed the intended benefits of the bill – such that it would curb reckless lending, empower magistrate’s courts to reduce interest rates, fees and charges when considering debt review applications, among other things.
But Genesis’ findings indicate that although the bill intends to address financial inclusion, the impact would be the opposite.
“Parliament may not have had sight of all the unintended consequences of the Bill.
“We respectfully suggest that the proposed solution may not be the most appropriate to achieve the laudable goals of helping vulnerable consumers, in fact it is likely that the proposed solution will ultimately harm the wider group of lower income earners,” the report read.
According to Genesis, about 177 700 of over-indebted consumers would benefit from debt restructuring and debt relief under the debt intervention system. About 85 800 of over-indebted consumers would benefit from having their debts extinguished – and, surprisingly, the informal market of lenders or mashonisas/ loan sharks would gain R7.6bn in new demand.
Cons outweigh pros
The benefits are outweighed by the…