Johannesburg, 30 Sep 2022
The latest Altron FinTech Short-Term Credit Impact (AFSCI) Index, which tracks the impact of short-term credit[1] extension on the South African economy on a quarterly basis and is compiled independently by economist Keith Lockwood, was released today.
The index is an important indicator of the financial health of a vulnerable and often neglected portion of South Africa’s population and aims to improve the understanding of the role that short-term credit plays in the economy through its support of sales, employment and tax collections, and ultimately, therefore, the country’s gross domestic product (GDP).
As in the previous edition of the index, trends in short-term credit extension are supported by data from Altron FinTech’s technology platform and are used to provide an indicator of likely trends in the broader short-term credit market in the most recent quarter, ie, Q2 of 2022.
Previously, data supplied by Altron FinTech indicated a 5.2% decrease in net credit extension between Q4 of 2021 and Q1 of 2022. When it was released, National Credit Regulator (NCR) data showed that the actual decline was slightly larger at 8.3%.
In this edition, Altron FinTech data points to a further expected decline in net short-term credit extension of 7.8% in Q2 of 2022 when compared with the first quarter of this year.
Highlights of the index[2]
[1] Short-term credit is defined as loans with values not exceeding R8 000 that are repayable within six months.
[2] The calculation of the economic impact in this edition were updated using the latest CPI weights for different expenditure deciles. As a result, the values may vary from those of previous editions.
Lockwood says it is important to consider the context of the data. “As you know, consumer credit markets do not operate in isolation from the rest of the economy. Given the lag in the release of credit data by the NCR, it is worth remembering what was happening in the economy between January 2022 and June 2022 – the period that is the focus of the new credit data covered by this edition of the index.
“After the surge in Omicron-related infections in late 2021 and early 2022, COVID-19 largely ceased being of concern, allowing the government to lift the National State of Disaster in April. However, the economy continued to be battered by several developments that have prevented it from gaining growth momentum.”
Lockwood lists the most critical of these as being:
- The Russian invasion of Ukraine, which has caused disruption to global energy and food supplies resulting in a rapid increase in inflationary pressures around the world.
- In response, monetary authorities around the world have raised policy rates significantly. The South African Reserve Bank has followed these trends.
- Maintenance and breakdowns of generation units resulted in Eskom implementing over 100 days of load shedding in South Africa in the year to September 2022.
“As a result, while the country’s GDP in Q2 2022 was marginally – 0.8% – larger than a year earlier, the rate of growth was lower than the increase in the population over the same period. This led to a further decrease in real GDP per capita, which is now almost 7% lower than it was at the start of 2015.”
Importantly, says Lockwood, South Africa’s stagnating economy has served to further exacerbate poverty and inequality. “Based on the share of total expenditure calculated as part of the CPI weights, the poorest 10% of households were trying to survive on an average of R920 per month in Q2 of 2022, while the wealthiest 10% spent an average of over R93 000 per month.”
The pressures on the financial position of most households also continue to be reflected in the high rates of rejection of credit applications. “In Q1 of 2022, almost two out of every three applications for credit were rejected, compared with less than one in two in early 2018. This points to low levels of credit worthiness among most credit applicants and is reflected in the relatively low rates of growth in consumer credit extension, and in the favouring of secured credit, ie, mortgages and asset finance over other forms of credit.”
As at the end of the first quarter of 2022, the value of credit still on the books of registered credit providers amounted to R2.16 trillion – up 6.2% on a year earlier and 2.3% (R49 billion) higher than the previous quarter. Over 52% of this consisted of mortgages, more than 22% was secured credit and almost 10% was unsecured credit. However, short-term credit only accounted for 0.1% of the total.
Lockwood explains that short-term credit is relatively more accessible to lower income groups than other forms of credit. “This is due in part to short-term 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.”
Noteworthy, he adds, is that whereas people with monthly incomes of R15 000 and above accessed 88% of the total consumer credit advanced in Q1 2022, those with monthly incomes of less than R10 000 only received 7% of the total credit extended.
“By contrast, when it comes to short-term credit, people earning more than R15 000 per month received 45% of the short-term credit advanced. Combined, those earning less than R10 000 per month accessed 38% and those with monthly incomes of R10 000 to R15 000 received the remaining 16% of short-term credit. More specifically, people with monthly incomes of R5 501 to R7 500 accessed only 2% of total credit, but 12% of short-term credit and those with incomes R3 500 or less received 6% of short-term credit but only 1% of total credit.”
He explains that the AFSCI Index is indexed to 100 in the first quarter of 2015. “It reached a peak of 178 in the fourth quarter of 2015, but has since trended lower. At the height of the COVID-19 lockdown, it reached a low of 41, but recovered slightly in the quarters that followed. In Q1 2021, it decreased to 80 from 87 the previous quarter.
“Short-term credit extension made 20% less of an impact on the economy in Q1 of 2022 than it did at the start of 2015, but 92% more of an impact than at the height of the lockdown. Altron FinTech data suggests that, unfortunately, the impact of this form of credit will decline further in Q2 of 2022.”
The MD of Altron FinTech, Johan Gellatly, says this quarterly research continues to be important as it gives an indication of the health of not only South Africa’s credit market, but also of the broader economy.
“What this edition certainly highlights is that consumers, particularly low income earners, are feeling the pinch of increasing inflation and soaring food and fuel prices. In the year to August 2022, household transport costs increased by almost 21%, while food was close to 12% more expensive.
“We need to bear this in mind, particularly in regard to our customers, ie, suppliers of credit who use our products to service consumers, by ensuring that our solutions ensure optimal efficiency in their businesses. We also pride ourselves on continuously researching, developing and utilising technology that affords our customers the opportunity to focus on their primary business, which is particularly important in challenging times such as these.”
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