LETTER: Microlending has pitfalls
If Mark Barnes is serious about taking Postbank into treacherous waters, he must look at the critical factors first
Mark Barnes must realise he is taking Postbank into treacherous waters (Postbank’s fresh loan plan aims to boost access, April 28). While access to credit for informal sector businesses, in the form of microloans, is touted as promoting financial inclusion, it has more often than not led to overindebtedness and financial distress among borrowers and boom-bust times for credit providers.
By citing the need to "find the right price" for these loans, Barnes is calling for a more borrower-friendly yet sustainable risk-return ratio, which is admirable. But the state is already deeply invested in this space, notoriously via the Small Enterprise Finance Agency (Sefa). For the financial year to December 2016 Sefa reported that 48%, or R678m, of its loan book was at risk — in other words might not be paid back. Poor preloan screening and inadequate postloan support are the main causes of this dismal performance. Too much was borrowed for consumption spending, not investment.
If Barnes is serious about entering this market, he would be well advised to take a close look at these critical factors first. Economic development of our poorest regions requires a holistic approach and access to credit is but one pillar of a multifaceted solution.
He would do well to have a conversation with the National Mentorship Movement, which aims to source 100,000 mentors and 1-million mentee businesses. That could lead to inclusive, socially responsible and profitable business that moves the dial on job creation and growth.
Toby Chance, MPDA shadow minister for small business development