The dust is only just starting to settle following the longest mining strike in South Africa, which lasted five months. Miners have resumed work at the Rustenburg mines, generally pleased with the outcome of the wage agreements reached in June 2014. However, what remains a worry is the present state of striking mine workers’ credit records. In fact, objective data from a leading credit bureau, Compuscan, reveals that miners may now find themselves in a more detrimental financial position than before the strike. What is equally concerning is the ripple effect that the level of over-indebtedness has had on credit providers and local businesses.
A long road to recovery for over-indebted individuals
Based on a representative sample of Rustenburg miners with an average monthly income of R10 000, Compuscan’s data indicates that miners’ overdue debt increased a staggering ninefold during the height of the strike. While it was clear that striking miners felt the impact of being without an income during the strike, this data, provided to the bureau by the credit industry, provides an objective view of the resultant situation. The data included information on secured and unsecured credit, but predominantly that of unsecured loans.
Sadly, the facts reveal striking miners’ financial standing worsened over the time of the strike. Without salaries, their dependence on credit increased and the need to borrow for basic necessities such as food, school fees and clothing became a prevalent reality. Non-striking individuals who weren’t receiving selective aid, including food parcels, were also hard hit.
Prior to the strike, Compuscan’s data indicated that the average miner owed a total of R100 000 in accumulated debt and was paying back R5 000 per month. The concern is that the amount in overdue debt increased to an average of approximately R9 000 during the strike. This meant that the average miner was overdue by one salary payment and would have to spend half of his salary on debt repayments to avoid falling even further behind.
While 73% of miners were overdue on one account or more in the three months prior to the strike, this percentage rose to almost 88% after the strike. Further to this, a concerning 56% of miners’ accounts were three or more months in arrears, and thus considered bad, before they downed tools but as time rolled on with matters unresolved, the situation elevated to the point that 62% of the average miner’s accounts were considered bad.
Comments Jacobus Eksteen, Senior Data Analyst at Compuscan: “This bad debt is not likely to be recovered and it is probable that most of these borrowers will be handed over to debt collectors, receive judgments to pay their debt or, worst-case scenario, have accounts written off. Although we have done a case study of a recent economic situation, our intention is not to isolate this case. It must be noted that over-indebtedness is a far broader concern in South Africa as almost 58.5% of credit-active consumers have at some point not been able to meet their debt obligations.”
An equally tough journey ahead for credit providers
Not only did the strike have a knock-on effect on miners’ credit records and their ability to repay their debt, but the ramifications also notably affected credit providers (including microlenders) for a number of reasons; the most obvious being that a significant percentage of miners who had taken out loans were unable to repay their debt timeously. Thus, with a decrease in the average miner’s credit score, the risk involved with lending to them increased.
Contrary to fears that the strike would lead to reckless lending, it appeared that most credit providers were in fact cautious to grant loans, particularly to new striking clients without payslips as they prioritised assisting non-striking current clients with proof of income. A mere 21% of miners were granted new credit agreements within a three month period during the strike in comparison with 49% that opened accounts in the three months prior to the strike. Credit providers primarily granted one month loans, unless the applicant’s income was high enough to afford a term loan. Furthermore, credit providers seemed to be understanding of the predicament as they did not hand over striking miners who attempted to restructure their loans.
However, the consequences that credit providers were confronted with due to the strike were not as isolated as striking miners not being able to make repayments. The negative impact had a much wider reach as local businesses, including taxi drivers, also struggled to keep their heads above water as many miners – a significant portion of their client base – returned to their homes elsewhere and the pockets of those that remained behind emptied. This meant that owners and employees of local businesses were also faced with the difficulty of meeting the terms of their repayment agreements with credit providers.
Despite the fact that reckless lending was avoided, credit providers’ bad debt increased remarkably during the strike – in one case, from 10% to 80%. As the intensity of the situation worsened, credit providers, like other businesses in the area, were forced to retrench staff members. In one case, a credit provider had to retrench 46% of its employees. Those that were worst off were the credit providers that had branches near to the mines and were extremely reliant on miners for business.
Mining is intrinsic to the strength of South Africa’s economy and thus, with a strike of this magnitude, many consumers across industries have had to bear the brunt of the situation as this case study has revealed.
Jacobus Eksteen, Senior Data Analyst at Compuscan, continues: “While the predicament that miners face in order to improve their credit records may seem far removed to the average South African consumer, it is a matter that all credit-active consumers can learn from. We’re a credit-dependent society and it is vital that consumers manage their debt to avoid over-indebtedness.”
As it stands, South African consumers rely strongly on credit for daily living – from cellphone accounts to vehicle fincance or home loans. This is becoming more true as the facts and figures show that the number of accounts that are being opened is on the rise. According to the latest National Credit Regulator’s Credit Bureau Monitor for the first quarter of 2014, credit bureaus held records for 21.71 million credit-active consumers as at the end of March 2014. This figure indicates an increase of 5.2% from 20.64 million in the previous quarter ended December 2013. In addition, there was a quarter-on-quarter increase in the number of accounts from 73.18 million to 77.18 million.
In order for South Africans to take control of their finances and avoid becoming over-indebted, it remains vital for them to properly manage their debt. One of the most important ways for consumers to do so, is by frequently checking their credit reports. As such, Compuscan has recently launched an online portal, My Credit Check (www.mycreditcheck.co.za), which makes it easier for South Africans with valid identity numbers to access their credit reports and remain informed about their financial standing so as to steer clear of the road to recovery that many miners unfortunately now find themselves on.
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