Open Letter to Capitec, micro-lenders: how to fix SA’s shameful money problem
In his latest piece, popular Biznewz blogger Enrico Liebenberg offers a way forward for money lenders in the high risk sector to improve their reputation, and therefore share price, at the same time as making a meaningful difference to the wellbeing of their customers. He reckons personal finance education is the way to improve collection rates in the long run.
South Africans are appalled by the micro-lending scourge. But, the problem of ordinary banks failing to lend to those who need it the most – and therefore leaving the desperate with no choice but to opt for unscrupulous operators – is a worldwide issue.
Every night on UK TV, for example, you will see groups of animated old people discussing how easy it is to get a quick personal loan. The small numbers flickering at the bottom of the screen indicate repayments at staggeringly high interest rates, sometimes in triple digits. TV commercials aren't cheap to flight and these ads pop up regularly, which tells me two things: the profits are enormous in micro-lending, even if there are many defaults, and there's no shortage of customers for these deals.
It is strange that commercial banks, with their abundance of talented finance professionals, can't seem to come up with a formula that would create more access to short-term funding for cash-strapped individuals and businesses. There must be a way, surely, of lending money on manageable terms to those who currently don't qualify for the cheap bridging finance many of us enjoy through credit cards.
Read Enrico's piece and then tell us how you think we can improve lending to lower income groups, by commenting below this article or by submitting your own blog to biznewz.com – JC
By Enrico Liebenberg
Capitec and its peers have been attracting a lot of attention of late for various reasons. This got me thinking – surely there has to be a positive spin-off to the whole thing.
Given the comments that micro-lending is a social evil – this creates a huge captive audience for the lender. Traditionally the target market of micro-lenders is part of the lower income groups and subsequently has less access to education. Think about Maslow's hierarchy of needs.
I would like to challenge the micro-lenders; you have all the information to contact customers on your debt book. Why not start a financial education drive to add value to your customer's experience? This might cut into your profit margins, but surely the long-term effect will be a much improved collection rate.
All your customers has access to cell phones and chances are most of them are active MXIT users – go have a chat with the legend Michael Jordaan – there is great synergy to mine!
You can send the customers daily message of how to improve their financial health, from budgeting tips to details of how x, y or z financial products work. Get your customer base to attend free workshops (90 minutes max) on different domestic finance principals. By educating society you will make a change – your customer might not earn millions after dealing with you company but, he/she will have perception that ABC Company Ltd cares and is my friend, they help me to understand, and how to talk to me about financial products so that I understand!
Apart from gaining the trust of your customer base, you might gain valuable respect from Joe Public. Who knows how this will impact on your share price?
I'll even give you ten topics to start with:
- Why is it important to keep within your means?
- Who cares about the Jones's?
- Tips on how to manage your cash flow.
- Prioritise your payments.
- What is the best investment you can make today?
- Why is it important to spend money on the necessities and let the "Must haves…" slide?
- The how to guide of banking.
- Should I buy insurance products?
- Is that annuity really worth all the money you pay for it?
- How to keep track of your spending habits.
We as society cannot expect anyone to improve his financial situation without the necessary knowledge. That is like telling your three-year-old nephew here is bicycle, now go win the Tour de France in five years time.
Why do I think the micro-lenders are in the best position to provide this service? Well, you will not have a client base if everyone had the necessary financial know-how and discipline, and if they did and a series on misfortunate events caused the financial pressure, surely your default rate will look much better.
The majority of us learn how to work with money from our parents and other mentors – what if they did not know how to manage their cash? Chances are that you will not know either, and possible repeat their misfortunate decisions.
We all want to leave a legacy – here is an opportunity for the micro-lenders to leave a positive one.
Enrico Liebenberg is Financial Manager at one of the country's largest sporting and hunting goods retailers and is based at their head office in Stellenbosch. Enrico takes a very keen interest in picking winning investment portfolios. To keep body and soul balanced, Enrico loves a round of golf, follows professional cycling and enjoys relaxing with his wife, but not necessarily in that order of importance. When not in the office you will most likely find him at his favourite local pizza spot enjoying the odd pizza and an ice cold brew or two.
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