Cape Town – Debt review is a “lifeline” for borrowers and its shortcomings need to be addressed if it is to work effectively, according to a Treasury official.
Speaking before Parliament’s portfolio committee on trade and industry at a public hearing on the Draft National Credit Amendment Bill earlier in the week, Treasury chief director of financial sector conduct Katherine Gibson explained that there are merits to debt review, but its shortcomings must be addressed.
This was one of the outcomes of research by National Treasury and consultancy Eighty20. The research looked at the credit market and particularly debt intervention, and sampled 300 000 borrowers active in the credit market.
The study showed that more than half (56%) of the credit active population had an income of R7 500 or less.
It also revealed that 16 million loans could qualify for debt intervention. Less than a third (29%) of the loans or 4.7 million are three months or more in arrears. The outstanding balance of these loans amounts to R20.7bn.
The research also showed many loans which are in arrears can be recovered fully. However, those in arrears for a longer period of time, or more than nine months, are less likely to be recovered.
Gibson explained there are borrowers who can afford to pay back their loans, others who are struggling to make repayments and those who simply will never be able to repay their loans. Those who are struggling to make repayments can be helped with debt review.
“We know there are weaknesses there (debt review). We should consider how to better use the debt review system to help those who can pay or can be rehabilitated, but can’t access the debt review system,” she said.
‘Tweaked with light surgery’
Gibson suggested that the bill be “tweaked with light surgery” to provide support for those who are insolvent and cannot be helped with the “current mechanism”.
She explained that the current system is not working for the majority of borrowers. They may need their debt to be written off, but they do not want the consequence of being excluded from the credit market. “When their debt is extinguished, they will be excluded from the credit market for a number of years – that is a consequence.”
Creative ways need to be developed to rehabilitate these borrowers in a way that is not as extreme as extinguishing their debt, she said.
“We have a mechanism which regardless of its shortcomings, provides a lifeline. Debt review does provide a lifeline… The question is how to fix the shortcomings,” Gibson told the committee.
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