Responsible lenders can do more to drive Africa’s financial literacy
Brett Van Aswergen, Wonga CEO, believes it is the duty of responsible regulated lenders to do more to boost the financial literacy of African consumers.
South Africa has all the hallmarks of a well-developed formal financial sector, with a broad range of financial products available, excellent access through in-person and online channels and competitive borrowing rates.
However, despite the presence of reputable lenders, South Africa has a population that ranks highly in terms of its indebtedness, with consumers now having 20% more unsecured debt on average in 2022 compared to 2016.
That suggests that despite a well-developed financial sector, the country suffers from poor levels of financial literacy, with many consumers lacking the knowledge and skills to make important financial decisions.
What is financial literacy?
Financial literacy is the ability to understand financial products and make important decisions about their use. It’s also being familiar with the basics of budgeting, saving, investing and debt and knowing how and when to use these four pillars to manage your money and become more prosperous.
Unfortunately, in South Africa, poor levels of financial literacy continue to hamper many people’s abilities to make informed financial decisions. In turn, that is increasing levels of indebtedness as well as the number of missed repayments and defaults.
The link between poor financial literacy and financial exclusion
There have and continue to be interventions by the state and other organisations to enhance the level of financial literacy in South Africa. However, these are being undermined by a lack of financial inclusion, with households in many of SA’s poorer townships unable to access the formal lending system.
The financially excluded are unable to access a full range of financial products and are more likely to accumulate expensive debts on credit cards and even approach unregulated neighbourhood lenders, known as mashionisas, for short-term loans at interest rates of up to 50%. It’s perhaps unsurprising that they then fall behind on their repayments.
The role of formal lenders
Although there have been efforts to improve financial literacy in South Africa, the initiatives have been scattered across a number of organisations and suffer from low levels of coordination. That’s why Brett Van Aswegen, CEO of the short-term lender Wonga, argues that educating borrowers should become the responsibility of the lenders themselves.
By providing financial literacy lessons at source, he believes that lenders can give borrowers a better understanding of financial products and the risks involved. In turn, that can empower them to make well-informed decisions.
He said: “This is an opportunity for lenders to differentiate themselves as a responsible lending institution, operating according to strict legislative requirements and employing fair lending practices. I encourage lenders to lead the way through educational initiatives which will ultimately create positive financial behavioural change.”
Wonga have also been behind the most recent inquiries into the state of the informal lending market across South Africa and are committed to addressing the challenges still present to at-risk customers in this market.