South Africa has a sophisticated financial system and well-developed credit market. However, many low-income earners manage only basic monthly consumption needs and financial shocks by accessing short-term unsecured credit. This has led to chronic over-indebtedness for many low-income households.
The legislative framework provided a system for over-indebted consumers to consolidate their debt in order to release themselves from a debt spiral. However, Parliament became concerned about the welfare of lower-income consumers to access this process of debt review. To assist the lower-income consumers Parliament introduced a bill, the National Credit Amendment Bill 2018, to create a separate debt review regulatory regime and process for a defined lower-income segment, called debt intervention.
Owing to the material impact that the Bill is likely to have on the credit markets, consumers and the state, Genesis was appointed by the dti (on behalf of Parliament) to undertake an independent socio-economic impact assessment of the Bill.
In undertaking this important work, the Genesis team consulted widely with the affected stakeholder, including consumer protection groups, Cosatu, debt counsellors, the banking industry, retail industry, micro-lenders and government departments and regulators.
Genesis unlocked value for the client by introducing into the public narrative, for the first time, an evidence-based quantification of the size of the problem of low-income consumers who are over indebted and did not currently have access to the debt review process. This was not known before the study.
Then we provided analysis of the proposed solution vis-à-vis the scale and nature of the problem, and provided a professional independent opinion on whether the Bill was net positive or net negative for the economy.
Genesis further provided an assessment of whether the proposed Bill was the most appropriate mechanism for the existing shortcoming of the legislation. We then provided recommendations on how the Bill could be amended to mitigate negative impacts while achieving the goal of assisting over-indebted consumers who did not have access to the statutory mechanism for unwinding debt.