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CONSUMER LENDING IN AFRICA
INTRODUCTION
Consumer lending is the broad term for any type of loan secured by an individual
from a financial institution like a bank or some other company that specializes in loans¹.
This differs from commercial lending, which is the practice of banks making loans to
businesses. There are many different types of loans offered under the realm of consumer
lending, including mortgages, personal loans (installment loans), motor (auto) finance,
retail loans (retail installment loans), store cards and credit cards. The basic terms for
such loans is that the consumer is given money for his needs up front, knowing that he'll
have to pay the loan back, along with interest, to the lender in a specified amount of time.
At one time or another, many individuals are faced with the need for a large amount
of capital for a purchase or some personal issue. Whether they need cash to make a down
payment on a house or to buy a car or they need to dig out of some personal financial
hole, loans are often the only way for them to acquire the desired cash. An entire industry
has grown up around the practice of consumer lending, in which a bank or other
authorized lender yields money to the consumer until the consumer can pay it back.
TYPES OF CONSUMER LENDING
i. Peer to Peer Lending
ii. Shadow Banking
iii. Crowd Funding
Players in Africa’s Consumer Lending:
Lending Institutions and End Users
1. Select Africa
Select’s vision is to focus on servicing the un-banked or entry level retail credit
market which is often overlooked by the formal banking sector as the clients are
deemed too small, risky and/or unprofitable. Select provides products, which have
previously been reserved for the financial elite to this market. The product suite
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includes housing loans, credit for housing related projects e.g. Select Water and
Select Solar, edu-loans and retail consumer credit and insurance.
Target Market/ End Users
Select Africa’s typical client is employed, yet unable to access personal or housing
finance through traditional banking channels due to banks aversion to perceived
higher risk clients and the inability to mortgage (or attach) properties as security
across many countries in Africa. The Company’s primary client base tends strongly
towards public sector employees, typically being the largest and most stable
formally employee base in markets across Africa. Loan repayments are deducted
via payroll (at source), providing for more consistent collections which lead to
lower product interest rates.
Business Model
The business model is based on payroll-facilitated lending for housing and home
improvements, education and other consumption purposes. Through this process,
employers deduct monthly loan payments from their employees' pay slips and remit
this directly to Select.
This practice enables Select to offer its clients favorable interest rates relative to
competitors. The risk of non-repayment whilst clients are employed is also lower.
2. ALIOS Finance
ALIOS Finance is a Pan-African, specialized finance company with a mix of
prestigious African and European investors. Having been present in Africa since
1956, its current operations are in Ivory Coast, Cameroon, Gabon, Mali, Senegal,
Burkina Faso, Zambia, Kenya and Tanzania. In each of these countries, Alios
Finance has developed successful finance solutions, and has contributed to the
social and economic development of these countries.
Target Market: ALIOS Finance targets SME’s, multinational and individuals with
products such as operational and financial leasing, investment loans and consumer
finance. They offer a broad range of asset finance solution for SME's, corporate and
individuals, which include leasing, investment loans, long-term rental and consumer
credit.
Business Model: The shareholders of Alios Finance share a strong and common
vision for Africa, to develop a successful Pan-African Group offering a wide range
of products to SME's, major local and international companies, professionals and
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private consumers. Alios Finance has embarked on an ambitious strategy of
expanding its traditional range of products into new markets, including the launch
of new operations in new countries, specifically in English speaking Africa.
3. RCS Group
The RCS Group (RCS) is a consumer finance business that offers its customers a
range of financial services products under its own brand name and in association
with a number of retailers in South Africa, Namibia and Botswana. The two
primary business areas are cards and loans. The cards business provides convenient
payment facilities to consumers, whilst the loans business offers consumers
personal cash loans of up to R100 000 (N1, 622,000), whatever their immediate
needs.
Target Market/ End Users
RCS is committed to making life purchases more accessible for its customers. The
RCS Card is accepted at over 20 000 retail stores across South Africa. From
fashion to furniture, automotive parts to home improvements and even the latest
hi-tech electronic gadgets and groceries, one card gives a customer access to credit
across South Africa’s largest shopping network. Ultimately, it’s about helping
make the impossible possible in a challenging economic climate.
Business Model
RCS Consumer Credit facilities are met for making certain expenditures like car
repairs, wedding ceremonies and study fees possible upfront and available to most
people that have been undeserved by the commercial banks. Part of the process
involved in making this business possible involves the following:
i. Beneficiary must age must be 18 years and above.
ii. The income level of the individual must be between R1, 000 (N16, 220) to
R2, 000 (N32, 440) per month at the minimum to have access to any of these
facilities.
iii. Beneficiary must hold a South-African ID and must have a bank account
which is very active.
Challenges with Consumer Lending in Africa5
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i. Job Insecurity: Some borrowers lost their jobs and couldn’t pay back the
money they owed the bank. They struggled to get a new job, and when they
did it wasn’t enough to cover what they owed. Sometimes they paid the bank
and then didn’t have enough money to eat, or to even catch a taxi to work.
They consequently pass through suffering and severe depression, and some
eventually lost their jobs.
ii. Lack of appropriate affordability assessment: Credit Act stipulates that
before a contract is entered into an affordability assessment must be done.
The Act requires the lender to take reasonable steps to determine the ability
of a consumer to afford a loan, but allows the lender to decide how to do this,
as long as the process is fair and objective.
iii. Reckless Lending: African Bank and Lenders (Official and Unofficial) act
recklessly and lend contrary to the intentions of the various Credit Acts (eg.
NCA as in South Africa. The financial institution would often give new loans
to clients who were in default on existing loans, through a practice called
novation
References:
1. Wise GEEK: http://www.wisegeek.com/what-is-consumer-lending.html
2. Select Africa:
http://www.selectafrica.net/select_africa_company_profile_business_model.html
3. Alios Finance: http://www.alios-finance.com/site/en/index.php
4. RCS: https://rcs.co.za/about-rcs
5. http://mg.co.za/article/2015-05-12-african-bank-no-rescue-plan-for-borrowers