The Altron Fintech index shows that SA contracts and manages its microfinance debt better than before Covid-19
Dr Roelof Botha is the economic advisor of Optimum Investment Group and the mastermind behind the Altron Fintech Household Financial Resilience Index. Dr Botha joined BizNews contributor Bronwyn Nielsen to discuss the index, which aims to assess the state of microcredit in South Africa from the perspective of borrowers’ ability to repay their loans. “If you look at micro-finance in South Africa, if you can extend access to finance to relatively poor households – who have a source of income – then it stands to reason that you can accelerate spending and productivity. . Many of these Altron Fintech customers are actually using these loans for working capital, to buy welding rods and fuel for the bakkie, so they can go to the site and build houses. It plays an invaluable role, ”explains Roelof. – Jarryd Neves
Dr Roelof Botha on what the data shows about credit in South Africa and the ability to repay it:
If you look at microfinance in South Africa, if you can extend access to finance to relatively poor households (who have some form of income source) then it stands to reason that you can speed up spending [and] productivity – because many of these Altron Fintech clients (which are microfinance institutions) are actually using these loans for working capital, to buy welding rods [and] fuel for their bakkies, so they can go to the site and build houses. It plays an invaluable role in allowing economic activity to flourish, especially in informal areas.
On the advantages of microfinance institutions:
The advantage of microfinance institutions is that they maintain an intimate relationship with their clients. In formal banking, your interface is a computer. I don’t know when the last time you tried to see a bank manager; it is almost impossible. I have to tell the [listeners/readers] that an institution like the MasterCard Foundation is actively involved in funding and monitoring progress, with financial inclusion for low-income groups all over the world – in all developing countries.
In India, they’re actually heading into a scenario where they want another level of financial intermediation. At the bottom of the ladder you have your microfinance institutions as we know them – some of which don’t follow the law, which of course should be avoided. Then you have your formal banking sector. Somewhere in between – and in many countries, including South Africa – it is really difficult for many small businesses (and even individuals) to access credit. What they’re envisioning is sort of a Premier League for microfinance institutions, where you actually build this ladder of upward mobility, in terms of financial inclusion, step by step. I think it’s a brilliant idea.
On governance and regulations around microfinance:
I cannot speak on behalf of Altron Fintech, [but] what I know is that they are only on the market for microfinance institutions that are registered with the National Credit Regulatory Authority. All the software that you find in these registered microfinance institutions complies with all the requirements of the National Credit Regulatory Authority. The person [that] Applying for a loan must have a regular source of income – this must be proven and all the checks and balances are in place. We are talking about a regulated and formal industry.
You must have a composite indicator that examines other sources of income, [rather] than simple salary income. There are many sources of income for average South African households, both indirectly and directly. You have dividends, you have capital gains. I know a lot of people [who] go to auction [and] buy anything from tractors to sheep to bicycles and then resell them for a profit. We’ve covered our bases. We have 20 different metrics, most of which are a basis for current or future income.
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