Microfinance Practice: Re: [MFP] proposed changes to South African National Credit Act

Dear Malcolm,

I disagree with your statement that large banks are cost-efficient. Larger banks don't provide personal service any more, because they are cost-inefficient in this market niche. In a overregulated context, with lots of market power they collude, and go to larger clients, with easier profits.

Credit unions and check cashers hire less expensive staff for better quality of service, with lessor overhead. In pursuing higher fees, they forgot about the low cost technology of reaching the poor. Like in microfinance against the banks in the South.

Of course in the long term, the profits of both the check cashers and the banks will go down, but of course in the long run... and we won't get there because central banks take over before the plush bank goes bankrupt.

There is a clear public need for appropriate regulations for financial institutions serving low-income clients with a basic service package: savings, credit, cashing.

Best regards,

Jozef

On Mon, Jan 6, 2014 at 5:35 PM, Malcolm Harper <malcolm.harper@btinternet.com> wrote:

Thank you Kim, like all 'real' things, it's complex. We love to find simple single solutions to problems, like microfinance can end poverty, or single causes of problems, like politicians are responsible for everything that's wrong in India (or USA, or Europe, or the world).

Banks don't provide personal service any more, not because they are bad guys, but because it's expensive to do so. The only ways to get it are to be super-rich and have a 'personal wealth manager' at a (costly) lush institution, or to be poor and have a nice cashier at a (costly) neighbourhood money lender.

But you can get your pay-day loan on line, as impersonal as any bank, much simpler too, and millions do, every day. It's about speed and simplicity for some people sometimes, and about personal service for others at other times, and availability, and maybe anonymity, all manner of things. Let's see what emerges, in SA, USA and UK....

Malcolm

From: Kim Wilson

Sent: Sunday, January 05, 2014 7:57 PM

To: MicrofinancePractice@yahoogroups.com

Subject: Re: [MFP] proposed changes to South African National Credit Act

Here is a nice write-up on what is happening in the US on exactly this topic.

http://www.theatlanticcities.com/jobs-and-economy/2013/09/why-poor-choose-go-without-bank-accounts/6783/

From: Malcolm Harper <malcolm.harper@btinternet.com>
To: MicrofinancePractice@yahoogroups.com
Sent: Sunday, January 5, 2014 2:09 PM
Subject: Re: [MFP] proposed changes to South African National Credit Act

Thanks Jeff, words can mean different things to different people.

But I happen to know someone who works in a fairly senior position for one of the 'worst offender' money shop type lenders in the UK. A single mother, immigrant, hard working and clear thinking, she is a good spokesperson for the business. It's not easy. It costs a fair bit of money to lend someone $100 for a week, 'transaction costs', risk costs, and so on, and some profit, never mind the cost of funds, it's hard to see how it can be done for less than ten dollars. "Outrageous, 10% a week, 500% a year", we say, and more if its compounded.

But it's really just a matter of fixed and variable costs; when you rent a house, or a car, there is often a high initial fee followed by a lower per period cost. Why not the same for renting money ? Maybe they should charge nine dollars fixed and a dollar a week to cover the cost of money and risk. The APR, effective interest rate, whatever, would still be 'outrageous' for one week money, but would actually be reasonable. Would the payday lenders accept something of the kind ? Has anybody asked them ?

Malcolm

From: M

Sent: Sunday, January 05, 2014 6:36 PM

To: MicrofinancePractice@yahoogroups.com

Subject: Re: [MFP] proposed changes to South African National Credit Act

Malcolm,

Good point. However you cut it a lot of money to service debts. Should be interesting to come up with a workable, low cost, scaleable alternative. Getting financial institutions to reform insanely profitable products is difficult as the efforts to reform the banking industry in the USA has shown.

Jeff

Jeffrey Ashe
jaashe@aol.com

-----Original Message-----
From: Malcolm Harper <malcolm.harper@btinternet.com>
To: MicrofinancePractice <MicrofinancePractice@yahoogroups.com>
Sent: Sun, Jan 5, 2014 1:27 pm
Subject: Re: [MFP] proposed changes to South African National Credit Act

Thank you Jami, interesting, maybe the UK government (and others too) could learn from what the SA government is trying to do. But 'disposable income' can be defined as what is left after paying taxes, or as what is left after paying for essentials such as food, housing, utilities and so on. It would be interesting to know which of these two meanings was intended in this article.

Malcolm

From: Jami Solli

Sent: Sunday, January 05, 2014 2:12 PM

To: MicrofinancePractice@yahoogroups.com

Subject: [MFP] proposed changes to South African National Credit Act

fyi article contains from very interesting stats from South Africa which you may recall has the credit legislation in place that bans 'reckless lending,' which is apparently easier said than done because they give the stats that 76% of consumers' household disposable income is being used to service debts, and more than 20% of credit active population (estimated to be 20m persons) is more than 3 mos. in arrears on loans.

Here's the full article:

https://www.compuscan.co.za/government-moves-protect-consumers-assist-indebted-households/

Best,

Jami