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Picture: 123RF/RIDO
Picture: 123RF/RIDO

Short-term credit extension picked up a little in the fourth quarter of 2021, when SA was grappling with the Omicron variant of Covid-19, a more virulent but less deadly variant, an industry survey showed on Wednesday.

Altron Fintech’s Short-term Credit Impact (Afsci) index rose two points to 85 points in the three months to end-December, with the rejection rate on credit applications declining to 66% from 67% in the previous three months, indicating a slight improvement in the financial health of households.

The fourth-quarter figure means that short-term credit extension made 15% less of an impact on the economy during the period than it did at the start of 2015, used as a benchmark, but activity has doubled since the height of the lockdown.

Early indications from Altron-supported credit providers pointed to a decline in the first quarter of 2022, but there were some positive signs in the market, including indications employers that survived Covid-19 were more willing to take on more staff, independent economic consultant Keith Lockwood told Business Day.

Seasonal factors may also be at play, given, for example, many employees receive 13th cheques at the end of the year, improving household finances and creditworthiness, said Lockwood, but there was trend was towards normalisation of economic activity.

Short-term finance, defined as less than R8,000 for less than six months, is a source of funds for lower-income households and micro businesses. While small, at about 0.1% by value of all credit, it is an important barometer of vulnerable populations and those reliant on funds outside the formal banking sector.

As at the end of the fourth quarter of 2021, the value of credit still on the books of registered credit providers amounted to R2.11-trillion — up 5.1% on a year earlier. Over 52% of this consisted of mortgages.

Altron created the index in partnership with Lockwood, who is a faculty member at the Gordon Institute of Business Science (Gibs). Altron, meanwhile, provides the technology platforms to registered short-term credit providers, and is aiming to shed light on an informal sector estimated at R300bn — 7% of GDP.  It uses the first quarter 2015 as a benchmark of 100 points.

The index reached a peak of 177 in the fourth quarter of 2015 but has since trended lower. At the height of the Covid-19 lockdown, it reached a low of 41, but recovered slightly in the quarters that followed.

While credit approvals have improved, Lockwood noted that rejections were still historically high, and at the beginning of 2018 less than half of applications had been rejected.

“Providers are still being quite cautious but are pushing towards normalisation. We have effectively lost two years [of economic growth] and the economy wasn’t performing well before Covid-19 hit,” he said.

More positive news has come in the form of an uptick in employment in the first quarter of 2022, although total employment was still 9%, or 1.5-million, lower than before the pandemic began.

The average number of employees per employer has been trending higher, rising to 15.7 people in the first quarter, improving from 11.6 at peak lockdown. It is still down from 18.3 in 2017.

Update: June 15 2022
This article has been updated with additional information and comment from Lockwood.

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