DA calls for debt-relief law to be halted due to Covid-19
The party says the act will restrict access to credit for low-income consumers and wants bridging finance available for SMEs at 0% interest
The government is under renewed pressure to suspend plans to introduce the controversial debt-relief law, which opponents say will restrict access to credit for poor consumers.
The DA is calling on the government to suspend its plans to introduce the law as part of measures to stem the Covid-19 economic fallout.
In a letter to trade and industry minister Ebrahim Patel on Thursday, DA member of parliament Dean Macpherson called for local development finance institutions, such as the Industrial Development Corporation (IDC), the Development Bank of Southern Africa (DBSA), and the National Empowerment Fund (NEF), to make bridging finance available for small and medium enterprises at 0% interest.
The coronavirus has left the global economy reeling and stocks plummeting amid fears of a jobs bloodbath. It has rapidly spread from its epicentre in Wuhan, China to 157 countries. The government declared a national state of disaster on Sunday as it moves to contain the pandemic.
Macpherson said it will be crucial for consumers to be able to access affordable loans during this time, but the Credit Amendment Act could see many low-income earners excluded from the formal credit market, forcing them to turn to unscrupulous lenders who charge exorbitant interest rates.
“The Credit Amendment Act should not be operationalised to allow for low-income South Africans to access much needed credit to survive day to day. This will loosen credit providers’ risk, which has increased since the act was signed and has already had a major impact on credit provision to low-income people,” Macpherson said.
The law, which was signed by President Cyril Ramaphosa late in 2019, provides for extinguishing of debt for heavily indebted consumers who earn a gross monthly income of no more than R7,500; have unsecured debt amounting to R50,000; and who have been found to be critically indebted by the National Credit Regulator.
The banking industry opposed the proposals on the grounds that they would result in a restriction of credit to the low-income section of the market and that extinguishing debt represents an unconstitutional deprivation of property. It would also mean that credit providers would have to price in the additional risk.
Defaults, cash-flow crisis
Macpherson said the pandemic will see most industries requiring intense amounts of capital, the majority of which is borrowed. This could eventually lead to large-scale defaults, a cash-flow crisis and eventual closure.
“It is therefore incredibly important that the department looks to use all available resources to stabilise the industrial, agricultural and banking sectors through a number of targeted means,” he said.
He called for a suspension or subsidy, where possible, on all state-administered prices affecting manufacturing, imports and exports for rail, port, toll fees, water and electricity costs. This should also apply to all rents that are paid to government where businesses find themselves on state-owned land, in state-owned property, industrial parks, and special economic zones.
Mcpherson said there should be no load-shedding during shopping hours or the weekend to allow for consumers to shop when needed. Furthermore, load-shedding in industrial nodes should be suspended as far as possible.
“There cannot be a lockdown of shopping centres as this would effectively bankrupt retailers,” he said.
Additionally, the DA is calling for a moratorium on BEE to allow for state funding and incentives to go where needed and not only to majority black-owned businesses as defined by government.