By Ashleigh Brown, journalist, Justmoney
Bridge, a short-term unsecured credit provider, announced last week that it had applied for business rescue proceedings due to current difficulties experienced in the unsecured lending market. However, the business added that it was also suffering as a result of poor national and global economic conditions.
Bridge explained that applying for business rescue was the best process to ensure the group’s long-term future and to preserve investor’s capital.
“The short term impact will be felt mainly by debenture holders who will see interest payments reduced from 19% or 12% to 6% during the business rescue process. In total about 1 200 investors are affected. Bridge distributed e-mail letters to investors and other affected parties on Friday 19 September,” said Bridge.
The business rescue process allows for a legal framework to restructure Bridge to enable it to continue as a sustainable business.
Is African Bank to blame?
“The turmoil in the unsecured lending sector following the placing of a major player into curatorship meant that Bridge struggled to secure funding for the business. We were in advanced discussions with a number of funders who decided to pull back as the problems for a major player in the market emerged in the past few months,” said Emile Adlum, chief executive of Bridge.
It is assumed that the ‘major player’ which was placed under curatorship is African Bank Limited (Abil) which was put under curatorship in August this year. However, the collapse of Abil might not be to blame for the difficult times the unsecured lending market is in at the moment. There have been previous warnings about the unsecured lending market and the financial problems that many of the clients in the sector are experiencing.
“In 2011, we did issue a warning about the growth of unsecured lending in an environment where many consumers were hurting badly and struggling to repay,” said Lesiba Mashapa, the National Credit Regulator’s (NCR) secretary to BDlive
. Mashapa went on to say that credit providers and consumers need to take responsibility for their actions.
The latest statistics from the NCR Consumer Credit Market Report showed that unsecured credit increased from R18.82 billion for March 2014 to R19.32 billion for June.
At the time of publication, the NCR had not commented further on the state on the unsecured lending market.
Should I still pay back my loans?
Wikus Olivier, debt counsellor at DebtSafe, warns consumers that the collapse of a financial institution does not mean that they should no longer pay back their loans.
"We urge customers of any financial institution to make sure their payments are made in full and on time.
“Defaulting on credit payments, even for banks going through crisis, will definitely still result in the blacklisting of your personal credit profile, which can have devastating and costly consequences in the long run," said Olivier.
The NCR has said that they are making changes to the affordability assessments: “The impending amendments to the current legislation will bring some changes to the way affordability assessments are conducted,” Nthupang Magolego, manager of investigations and enforcement at the NCR.
This is due to the rising concerns about unlawful credit providers and that affordability assessments are not conducted properly when issuing loans. These amendments could have an effect on the assessments done on clients before issuing am unsecured loan.
For more on unsecured lenders and unlawful credit providers, click here