New data from listed technology group Altron’s financial technology (fintech) unit shows that short-term credit extension, a key financial instrument for low-income households and small businesses, fell 12.3% between the first quarter of 2020 and the first quarter of this year.
Altron on Thursday launched a new index, called the Altron Fintech Short-term Credit Impact (Afsci), which was created in partnership with Keith Lockwood, an independent economic consultant and faculty member at business school GIBS.
The index is meant to provide assistance to “credit providers in the short-term credit market in their assessment of risk and credit extension, and in building a deeper understanding of the role that this form of credit plays in the SA economy and society”, the group says.
At a media briefing on Thursday, Lockwood said the key finding of the study was that despite the partial normalisation of the economy, the value of short-term credit extended was down 20% and the number of loans advanced was 25% below their pre-Covid-19 levels in the fourth quarter of 2019.
“Just as net additions to credit extension can generate positive economywide economic impacts that are a multiple of the value of the credit extended, so does the contraction of net credit extension generate negative multiplier effects throughout the economy,” said Lockwood.
In the first quarter of 2021, R1.97bn of short-term credit was advanced through 715,000 loans with an average value of R2,758.
Lockwood says the decline in the number of creditworthy applicants was due to the drop in total employment during the pandemic, down to 1.4-million jobs. In addition, he pointed to the decline in average real incomes in SA over the same period.
This is said to have resulted in an estimated economywide decline in sales of R790m, 1,400 fewer jobs were supported and R96m less in taxes were collected.
Altron says short-term credit is a relatively poorly understood form of credit, despite the critical role it plays in the economy.
Johan Gellatly, MD of Altron Fintech, said: “While short-term credit makes up a very small share of total consumer credit, it is an important market as it provides first-time access to credit to many people who have never had access before.” It also provides lower-income households with a proportionately greater share of credit than is advanced to them by other forms of credit.
The Afsci is the second of two indices developed by Altron Fintech. In August, it launched the Altron Fintech Household Financial Resilience index (Afhri), in partnership with Roelof Botha, an economic adviser to Optimum Investment. This index is meant to provide insight into “the financial state of households by assessing the state of microlending from the perspective of the ability of borrowers to repay loans”, the group says.
Results of that inaugural study show that the average household in SA is now better able to manage and incur debt than before the pandemic.
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