High levels of credit may have contributed to the cocktail of factors that led to the bloody clashes between police and Lonmin strikers.
It is the last Friday of the month and the small town of Marikana has begun to shake off the shock of recent events. Locals wait patiently in long lines extending from First National Bank and Standard Bank ATMs and the many cash-loan outlets in town service a steady stream of customers.
But it is not business as usual today. Many of the clients working at Lonmin's platinum mine have not honoured their loan repayments following a continuing wildcat strike that cost at least 44 lives.
Miners say most Lonmin workers take full advantage of the promises of "quick and easy" cash on offer. Cash-loan outlets the Mail & Guardian visited said their clients, most of whom work for the mine, take out an average unsecured loan of R1 000 to R1 500 with 30 days to repay.
A leading player in this market is Ubank, which has the third-largest market share after African Bank and Capitec. The National Union of Mineworkers and the Chamber of Mines own Ubank (see "Mining customer base ensures Ubank's healthy bottom line").
The pool of workers, many of whom have moved into the area from as far afield as the Eastern Cape, has created a fertile breeding ground for microlenders and banks willing to offer unsecured amounts to individuals. There are at least a dozen operators, big and small, offering micro loans in Marikana.
Miners said they could access loans of up to 50% of the value of their net pay. The net pay for a rock drill operator after deductions is between R4500 and R7000.
Increase in unsecured lending
Interest rates of 5% a month are charged, excluding a service charge of R50 a month and an initiation fee of a maximum of 15% on the value of the loan. Collection fees for defaulters also apply. These are the maximum rates of interest and fees the National Credit Act allows.
In accordance with the national credit regulations, a maximum of R1 257.50 in interest and fees can be charged on a short-term loan of R1 000 – that is more than 25% a month, or 300% if annualised.
Rajeen Devpruth, manager of statistics at the regulator, said short-term loans are intended to be once-off transactions and therefore not calculated on an annualised basis.
Miners told the M&G they settle outstanding amounts at the end of the year using their annual bonuses. Two miners said the high cost of finance did not worry them. One said he could afford it. Both said their issue was with Lonmin – they wanted a minimum wage of R12 500 a month.
During a meeting with the banking industry last week, Minister of Finance Pravin Gordhan noted the rapid increase in unsecured lending, especially to low-income households.
A pay slip or proof of employment is all that is required to secure a loan. "It's easy to get a cash loan if you work on the mines. They just check your pay slip from the previous month," one rock drill operator said, squatting under a tree in an attempt to avoid the searing midday sun.
"I don't think people go for cash loans because they are broke. It's the way they advertise themselves. It makes it seem so easy," another Lonmin employee said.
Don van Asperen, general manager for Tshelete, which owns three cash-loan stores in Marikana, says mine workers make up 90% of its clientele. These clients will often repay their debt and take out another loan immediately, or one to two weeks later.
"Some take two or three loans out each month. It's a sad, vicious cycle," Van Asperen admits. "But that's just the culture around the mines."
African Bank is located inside the Marikana Ellerines store. At 3.30pm on a Friday afternoon, several couples are waiting for credit approval.
The rock drill operator told the M&G he takes home about R4 800 each month but his car repayments, owed to African Bank, exceed R2 000.
Johan Theron, head of personnel at the nearby Impala platinum mine, told the M&G its workers are also heavily indebted. He said pay slips featured two main deductions: garnishee orders and deductions for amounts owed to shops in the area.
What happens when the debtors do not pay?
"If you don't pay for one month, your next salary goes here," the rock drill operator said, pointing at a cash-loan shop a few metres away. The debtor must visit the cash-loan store to collect the difference, if there is any.
Some lenders have arrangements with mines to deduct repayments from pay slips, but Van Asperen said Tshelete did not have much of a relationship with the mine. When clients defaulted on repayments, the cash loan company had to go through formal court procedures to obtain a garnishee order. It was not too prevalent, Van Asperen said. About 5% of the customer base have garnishee orders against them.
Hennie Ferreira, chief executive of Micro Finance South Africa, a representative body of registered and legal microfinance credit providers, said microfinancing in South Africa typically referred to a lender that is not a bank, but increasingly banks are entering into this arena.
Money to survive
"They are pushing unsecured and short-term loans … since the recession; other products are not giving them what they want."
Devpruth said unsecured personal loans have tripled in rand value over the past five years. "The outstanding value of the gross debtors for unsecured credit in 2007 was R41-billion and for the period ended March 2012 was R121-billion," Devpruth said.
"Over these periods the loan sizes have increased to R230 000 and loan terms of 84 months." Consumers who earned less than R7 500 a month received 31% of unsecured loans based on the rand values of credit granted for the period ended March 2012.
In light of the continued strike, Ferreria said the miners, many of whom have not earned money since August 10 when the protest began, will soon do anything to get money to survive.
"First they will go to the employer, then they will go to the banks, which won't help them. Then they will go to the registered credit providers who probably won't be able to help [new customers] either."
The next and final stop will be to borrow from informal and unregulated lenders and workers may find themselves in a debt spiral that is virtually impossible to get out of.
Mining customer base ensures Ubank’s healthy bottom line
One of the biggest players in the microfinance market is the Chamber of Mines and the National Union of Mineworkers’ Ubank.
The bank has 500 000 customers and is the third-largest player in this sector after African Bank and Capitec.
Formerly known as Teba Bank, Ubank is owned by a trust managed by the NUM and the chamber. It has entrenched itself in gold and platinum mining communities.
The NUM has been criticised for being out of touch with the needs of the workforce. Speaking at Lonmin’s Marikana mine a few days after the massacre, expelled ANC Youth League president Julius Malema said the workers should not associate with those who have sold them out and that the NUM had no intention to defend the workers.
Sixty percent of Ubank’s customers work in the mining industry and most of its branch network services the gold and platinum mining areas and the rural areas their customers call home.
Ubank said it was a unique banking institution driven by a social consciousness that underpinned all it does. “Responsible lending is paramount to Ubank because many of the consumers are overindebted,” it said in a statement to the M&G.
For short-term loans, the average amount lent over a year to a Ubank customer is R1 870 and the average unsecured loan amount over a 12-month period is R13 800, taken over a loan period of between 12 and 36 months.
Currently, “our impairment ratio is well managed within our risk appetite,” Ubank said.
It reported profits of R9.3-million for the six months ended August 2011 with assets of R3.5-billion.
Ubank made the news last year when its chief executive and chief financial officer stepped down following fraud charges laid against a senior employee who was dismissed after an internal investigation found she had allegedly inflated invoices. At the time, NUM general secretary Frans Baleni had said the amount exceeded R6-million. “This matter is being followed up with criminal charges,” Ubank told the M&G.
The bank has since undertaken a general cross-organisational compliance review of the internal control environment and certain processes and procedures have been refined.
“Ubank has always been a savings-led bank and this will continue because we focus on providing holistic banking services to our market. We are proud of our rich history, proven sustainability and are very optimistic about our future growth.”
The National Credit Act defines short-term credit transactions as those in which the deferred amount does not exceed R8000 and the whole amount is repayable within a period not exceeding six months.
Unsecured credit transactions are when the debt is not supported by a pledge or other right in property or suretyship, or any form of personal security other than credit insurance.