Time to think about debt-counselling sector as part of South Africa’s asset-management industry

Time to think about debt-counselling sector as part of South Africa’s asset-management industry
Debt-counselling sector

There is enormous potential to release back into the economy more of the R2,5 trillion in outstanding personal debt that South Africans owe.

According to the National Debt Counsellors’ Association (NDCA), around R70 – R100 billion of this outstanding debt belongs to consumers who are in debt counselling, with estimated R15 billion currently being paid back annually.

“South Africa has a world-class debt-counselling system, which has been proven to work. It’s conceivable that if more people sought help to manage their debt, the R15 billion being returned to the economy annually could be increased to R25 billion,” says NDCA chairperson, Benay Sager.

It is estimated that there are around 250,000 consumers who are in debt counselling and are actively paying back their creditors every month. Collectively, they are estimated to pay around R1.25 billion per month to creditors.

Part of this includes regular repayments on 20,000 homes and 60,000 vehicles. While this debt remains with the original lenders, it is still an asset which they want to recover, even when restructured as part of the debt-counselling process.

Sager says that because debt counsellors help manage the repayment of these assets, it is time to think about the sector as an of arm of the asset management industry, albeit one that is managing some of the distressed assets.

“Rather than being dormant while lenders try to recover it, the annual R15bn being repaid to creditors is put to good use by lenders to help grow the economy. This money is lent many times over, and if it increased by further R10bn per annum, then more money would be available to kick-start the growth of the economy.

“At the same time, while in debt counselling, assets such as houses and cars are protected, so consumers don’t endure the pain and humiliation of having these repossessed. It’s a win-win.”

Another advantage of encouraging more financially constrained consumers to seek help to manage debt is that high-interest debt is repaid first. This potentially frees up some income to address another issue with which too many South African consumers struggle – savings.

“Debt counselling has an important and arguably in these straitened times, an increasingly critical role to play by restructuring debt to get more money circulating in the economy,” says Sager.

Besides realising debt counselling’s opportunity to do this in the current regulatory environment, there is potential to extend it to other forms of debt. Currently debt counsellors cannot restructure levies, municipal rates and school fees, all of which fall outside of the National Credit Act (NCA).

Sager hopes that potential future amendments to the NCA will allow debt counsellors to restructure these kinds of debt, so that much-needed money owed to struggling schools and municipalities can also be recovered.

“Debt counselling is too often considered only a means to help consumers restructure their debt and get back on their feet. What is often overlooked is that it enables lenders to recover what they are owed. With personal debt at or near record levels and a stagnant economy, a functioning, efficient debt counselling sector is good for consumers and good for the country.”