The Altron FinTech Short-term Credit Impact Index for the third quarter of 2021 shows that short-term lending was heavily impacted by Covid-19, with the short-term lending segment of the consumer credit market having shrunk by 5.5%.

This is an important indicator that this segment of the population struggled to access credit markets, which has the potential to support low-income and marginalised households, as well as survivalist, startup and micro-businesses, economist and index report author Keith Lockwood noted in an April 6 media statement.

The book value of total consumer credit extended increased by 1.2% to R2.08-trillion, from R2.05-trillion in the second quarter of 2021.

The index tracks credit extension activity from 2015, with the overall index having declined from 96 points in the second quarter to 91 points in the third quarter of 2021, he pointed out.

“While short-term credit makes up a very small share of total consumer credit, it is an important market for a number of reasons, including that this credit is generally advanced outside of the formal banking system by individuals and institutions using their own capital rather than the deposits of their clients,” said Lockwood.

Further, short-term credit provides first-time access to credit to many people who have never had access before and provides finance to micro-businesses for working capital and stock and asset purchases.

This form of credit provides lower-income households with a proportionately greater share of credit than is advanced to them by other forms of credit and is a source of funding to households with low incomes and limited wealth assets in the event of unforeseen developments and emergencies, he noted.

“The dominant feature [during the third quarter of 2021] was the rapid increase in the average number of Covid-19 cases as the Delta variant spread throughout the country, in response to which the government raised the lockdown level back up to Level 4 and certain economic activities were again limited.

“As a result, while real gross domestic product was 3.4% higher than a year earlier, on a seasonally-adjusted quarter-on-quarter basis, it declined by an annualised 6.5%. Household consumption expenditure was even harder hit, dropping by more than 9% on a quarter-on-quarter annualised basis,” he highlighted.

Economic conditions took a further toll on employment, with the number of people employed dropping by 660 000, while the expanded unemployment rate rose to close to 47% of the potential labour force.

“The above factors, combined with rising inflation, particularly for food and transport, put the financial position of many South African households under even greater pressure.

“Credit providers, meanwhile, responded by adopting a more cautious approach to their lending. Of all applications for credit received in the third quarter of 2021, 67% were rejected, up from 64% the previous quarter.”

At the end of the third quarter of 2021, the value of credit on the books of registered credit providers increased by R99-billion to R2.08-trillion, with increased mortgages accounting for 94% of the R99-billion. Short-term credit only accounted for 0.1%.

“It is therefore apparent that, in response to the increased uncertainties and decline in creditworthiness, credit providers favoured credit with underlying security, such as home loans and asset finance, over unsecured credit,” said Lockwood.

Since the second quarter of 2020, there has been a 77% increase in the number of new short-term loans advanced, although the number of loans dipped from almost 788 000 in the second quarter of 2021 to about 762 000 in the third quarter of last year, he added.

The index also shows that people with monthly incomes of R15 000 and above accessed 89% of the total consumer credit advanced in the third quarter of 2021, and those with monthly incomes of less than R10 000 only received 6% of the credit extended.

“By contrast, people earning more than R15 000 per month received 42% of the short-term credit advanced. Combined, those earning less than R10 000 per month accessed 41% and those with monthly incomes of R10 000 to R15 000 received the remaining 16% of short-term credit.”

Further, the changes in both the value of new short-term credit extended and the number of loans that are advanced have given rise to a shift in the term of loans advanced.

“Whereas loans with a term of up to one month made up 74% of the value of new loans at the start of 2015, by the third quarter of 2021, this had dropped to 36%. Over the same period, the share of loans with a term of two to three months increased from 7% to 15%, and four to six months increased from 19% to 49%.”

MARKET INFORMATION

Additionally, after deteriorating steadily between mid-2017 and in the second quarter of 2020, the age analysis of the consolidated debtors’ book of short-term credit providers has improved considerably, meaning that fewer borrowers are in default or at risk of default.

In the third quarter of 2021, 70% of short-term borrowers were current in respect of their loan repayments, 14% were between 30 and 60 days behind, and 16% were more than 60 days behind.

By contrast, 91% of mortgage loans were current and only 5% were more than 60 days in arrears.

“Very interestingly, data from Altron FinTech shows that people aged 31 to 60 received a proportionately higher share of the value of loans than the number of loans, while those younger than 31 and those older than 60 obtained a higher proportion of the number of loans than their share of loan value.

“Borrowers between 31 and 40 years received 32% of the number of loans and 33% of the value, while those aged 41 to 50 received 26% of the number of loans, but 29% of their total value. Borrowers in the 20 to 30 year age group received 15% of the number of short-term loans, and 11% of the total value of such loans,” Lockwood highlighted.

Meanwhile, the Altron FinTech Short-term Credit Impact Index has proven to be of great value to the company, with Altron FinTech providing technology platforms to registered short-term credit providers, said Altron FinTech CEO Johan Gellatly.

“Owing to the findings, we are now able to collect data that facilitates a deeper understanding of the market our customers serve so that we can ensure our platforms are indeed fit-for-purpose. Importantly, as there is almost no measurement of how the informal economy contributes to the gross domestic product in South Africa, in sponsoring the index, we are attempting to provide an analysis and understanding of this contribution,” he noted.

“The index is, therefore, intended to provide regulators, policy makers, statisticians and of course, our customers, with a reliable benchmark for the entire industry and how it tends to behave given certain economic pressure points,” Gellatly added.