From VOA

A consumer credit boom in South Africa has trapped millions in swirling debt.  The country’s debt problem came to a head in August when the Central Bank and commercial lenders had to rescue African Bank from a flood of bad debts – mostly racked up on risky unsecured loans. The bailout placed a spotlight on the rapid growth of unsecured lending in South Africa.

Under apartheid, racial inequality left the majority of South Africans without access to banks. The 1994 transition to democracy set off a boom in consumer credit as many banks, most notably African Bank, offered loans to blacks for the first time.

But 20 years later African Bank was overcome by unsecured debt, loans obtained with little or no collateral, taken out by its core market of low-income borrowers, who defaulted due to chronic unemployment and rising fuel and food costs.

Ian Wason, CEO of Debtbusters, a debt management service, said that despite noble intentions the bank ultimately did a large amount of harm.

“The premise that African Bank started out with was good. But what it turned into was very, very evil; and exploited unsophisticated, uneducated consumers – and far from socially uplifting the country they have actually caused huge damage,” said Wason.

In October 2013, African Bank was fined $2 million by the National Credit Regulator for reckless lending to consumers with inadequate means to repay loans. The bank pressured uneducated customers to take on bigger loans than they asked for and in some cases gave additional debt to defaulters, a regulation source told VOA.

Debt counselors contend that irresponsible lending is rampant in South Africa.

South Africa’s total personal debt is $135 billion, an average of $6,356 for each of the country’s 20 million credit active people. Almost half struggle to meet repayments, according to South Africa’s credit regulator.

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