Picture: REUTERS
Picture: REUTERS

President Cyril Ramaphosa has defended SA’s controversial debt-relief law saying there is nothing unconstitutional about it.

This is despite the release of a socio-economic impact assessment study in parliament on Tuesday that suggests the law will eventually disadvantage many over-indebted, low-income earners — the intended beneficiaries of the system.

The banking industry had petitioned the president not to sign the bill in its current form on the grounds that it will  result in a restriction of credit to low-income earners and that it is an unconstitutional deprivation of property.

According to the government-commissioned study by consulting firm Genesis Analytics, parliament should reconsider the passage of the bill in its current form based on the impact evidence that has come to light. It suggests that parliament should introduce the debt-intervention system but within the bounds of the current debt-review system, with subsidy mechanisms for low-income consumers.

In August, Ramaphosa signed into law the bill that gives the National Credit Regulator (NCR) powers to write off unsecured loans — which do not need collateral — worth R50,000 for consumers found to be critically indebted and earning no more than R7,500 a month.

“According to ... the constitution, once a bill has been passed by parliament, the president is required either to assent and sign the bill into law or refer it back to the National Assembly if he has constitutional reservations,” Ramaphosa said in a written reply to a question from DA MP and spokesperson on trade and industry Dean Macpherson. “I could not find any constitutional defect in the bill. I consequently signed the bill into law.” 

Ramaphosa said there is no date set yet for the act to come into operation.

“Certain provisions of the bill require regulations and certain information to be prescribed before these provisions can be put into operation. The implementation of the bill will also require readiness from both the department of trade and industry and the NCR. The minister of trade and industry will advise me when all conditions to bring the act into operation are met,” he said.

According to the Genesis Analytics study, it is unlikely that the introduction of law will have a significant economic impact at a macro-economy level. The impact will be relatively greater on micro-lenders and retailers whose loan books are smaller than those of banks, but more skewed towards low-income borrowers. Micro-lenders and retailers are likely to see proportionally bigger write-downs than banks, but this is not likely to affect the stability of the banking system.

There are currently just more than 20-million credit-active consumers in the country, and close to 12-million earn less than R7,500 per month.

The study suggests that the law will mostly benefit the informal credit market. On the other hand, the formal sector credit providers could lose about R3.9bn of existing credit book. There are also second round losses for retailers in the form of lost sales of R1.9bn, according to the study. The fiscus will take on additional costs of R407m a year to fund the debt counsellor activities of the NCR and National Consumer Tribunal.

Macpherson said: “We now also know that President Cyril Ramaphosa chose to ignore the many red flags that the report raised and chose to sign it into law in the dead of night on August 13 2019. It is unthinkable that president Ramaphosa ‘applied his mind’ to this report before he signed the bill into law.”

Said Macpherson, “The bill diminishes the government’s attempts to broaden financial inclusion. It will cost government, at least R407m to implement the bill. All unbudgeted and 275% more than the NCR told parliament it would cost. The truth is that it didn’t have to be this way. Throughout the legislative process, the DA proposed many more sensible solutions to over-indebtedness, which the study finds in our favour.”