Data from fintech group Altron has shown that the ability of SA households to take on and service debt has returned to near pre-pandemic levels — a further sign that SA’s economy should benefit a little from improved demand-led growth in 2022.
The Altron Fintech Household Financial Resilience Index (Afhri), compiled by economist Roelof Botha, rose to 111.1 points in the fourth quarter of 2021, up 2.4 points from the third, when it — like other economic measures — was hit by July’s civil unrest.
This means that SA households were about 11.1% more resilient in the last three months of 2021 than they were in the first quarter of 2014, a period the survey uses as a benchmark, but about 1% less resilient than they were before Covid-19 struck SA.
There has now been a substantial improvement in most of the indicators used to compile the index from their Covid-19 lows, Botha told Business Day, but a full recovery may still be a few months off.
Overall, demand is still lagging a bit, said Botha, while some of the more substantial improvements, including the ratio of household income to debt costs, were reflecting low interest rates and tighter lending criteria.
The Afhri, developed by Altron Fintech and which uses 20 indicators, is one of two indices looking at activity in the short-term credit industry. The second was developed by economist Keith Lockwood from the Gordon Institute of Business Science
Altron, which provides the technology platform for microlenders, is looking to shed some light on the market for its clients, while also highlighting the importance of the lending industry for lower-income households and small businesses. The industry is often viewed negatively given the high interest rates that short-term loans carry.
“Due to the strong positive correlation between private-sector credit extension and GDP growth, it has become a matter of urgency for the government to reconsider the undue regulatory burden that has been placed on the formal microfinance sector,” said Botha. “Unless lower-income groups are allowed easier access to credit, the pace of employment creation in SA will remain muted.”
Botha said that between the third and fourth quarters of 2021, only six of the 20 indicators recorded declines, a clear indication of further progress with recovery of the financial disposition of households.
However, three of the four indicators with the biggest weighting, have not yet recovered from the pandemic.
Private-sector salaries, the biggest indicator with a weighting of 25%, are still down 6.3% from 2019 levels, while public-sector salaries, with a 12% weighing, were down 4%.
Private-sector employment, weighted at 7.5%, is still down 7.8%, but credit extension to households relative to debt, with the same weighting, has improved by almost a quarter.
Indicators with smaller weightings showed substantial improvements, with civil debt defaults improving 11% from pre-pandemic levels, while unit trust assets — a measure of household wealth — is up a fifth from before Covid-19.
Botha said the prospect of higher interest rates in 2022 was a threat, and while major global central banks were raising rates to contain inflation, SA should not necessarily follow their lead, given substantial slack in the economy and high unemployment.
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