CAPITEC CASE RAISES QUESTIONS ON CREDIT WATCHDOG'S POWERS

This article first appeared in the Business Times section of The Sunday Times on 8 May 2016. 

News broke this week that the National Credit Regulator had received a complaint about Capitec’s multi-loan product and the fees charged by the bank.

The allegations from Summit Financial Partners are centred on a Capitec product it claims is a series of micro-loans that are approved and accessed via an ATM credit assessment.

The National Credit Act requires lenders not to enter into a credit agreement without first taking reasonable steps to assess the consumer’s debt history, financial means, prospects and obligations, as well as ensuring the consumer understands the risks and costs of the proposed credit.

The allegation is that the three questions posed by a Capitec ATM are inadequate for a full assessment of a prospective customer ’s affordability. Summit also takes issue with the “initiation fees” charged by Capitec, which can apparently be as much as 12%.

Capitec itself has not commented much on the case, but has denied the allegations, suggesting there is a “misunderstanding of the technicalities”, and that a full credit assessment is redone for every loan application.

I personally hope the 12% fee is incorrect and that Capitec will be able to prove it is not charging people who need that R1 000 mid-month boost, a fee of R120 for a loan. That, in anyone’s books, is just too high — let alone for the lower- to middleclass Capitec customer.

However, what really interested me had less to do with Capitec but more with the powers of the regulator.

I learned that this matter was pursued by the NCR in 2013, but the regulator was stopped in its tracks by the National Consumer Tribunal.

Apparently the NCR relied on the provisions of the act that empowers the watchdog to investigate cases in its own name, without having to first receive a complaint from the public or an affected party.

On the back of the unsecured lending crisis in 2012, the NCR initiated an investigation into the industry and came across the Capitec multi-loan product and consulted the bank. 

The investigation reached a point where it was clear the parties disagreed, and the regulator duly approached the tribunal to rule on the Capitec product and whether it was in breach of the act.

The tribunal did not even consider the merits of the case, saying the NCR did not have “reasonable suspicion” to probe Capitec in the first place.

Apparently this interpretation has also been confirmed by the high court and materially curtails the ability of the NCR to investigate matters it believes require further analysis. 

The NCR is unable to investigate any matter without a complaint from the public, or without having some miraculously objective proof prompting “reasonable suspicion”.

The obvious problem with this is how ordinary citizens would know that their lenders are not in compliance with the act.

The other issue is potential “justice delayed”. Had the NCR been allowed to pursue the investigation in 2013, the matter would have been heard, both sides would have made their arguments and the tribunal its ruling. This would be good for the regulator, Capitec and, most important, the customers.

Otherwise, the government could have knowingly allowed a potentially illegal practice, prejudicial to ordinary South Africans, to continue for three years and not taken action.

The encouraging news is that parliament’s portfolio committee on trade and industry has noted the case and met with the NCR to discuss its powers regarding compliance with the act “in an attempt to ensure that consumers have quicker access to redress”.

The NCR didn’t mince its words to the portfolio committee and stated that its powers to investigate were limited to “reasonable suspicion” of abuses based on complaints from the public, and detailed how this had led to various entities refusing to be investigated.

This clearly needs to be resolved urgently.

WHITE MALES TOP OF THE WORK PILE AS BUSINESS PAYS LIP SERVICE TO CHANGE

This article first appeared in the Business Times section of The Sunday Times on 1 May 2016. 

‘THE South African labour market continues to be racialised and gendered, it remains hierarchical with blacks concentrated at the lower levels and the white group occupying decision-making positions.”

This was the conclusion of the Commission for Employment Equity’s 16th annual report on the state of transformation in the workforce.

It’s no surprise the statistics have once again revealed a lethargic pace of racial and gender transformation in the private sector, especially in top and senior management.

The ratio of whites in top management relative to blacks remains extremely high relative to their share of the economically active population — which is a measure of people between the ages 15 and 64, who are either employed or unemployed and who are seeking employment.

Whites represent only 9.9% of the total EAP of South Africa yet they constitute almost 70% of top management.

Africans were the biggest beneficiaries of the decrease in white top management, rising from 13.6% representation in 2014 to a paltry 14.3%.

It is worth noting that they form over 77% of the total EAP.

Further analysis shows that in the public sector, over 73% of top management are African, while the largely white-controlled private sector has only 10.8% of Africans in top management.

Chalk and cheese!

So the question arises: why has the pace of transformation been so slow in the private sector and what should be done to ensure its acceleration?

Ntsoaki Mamashela, director of employment equity at the Department of Labour, puts it down to excuses of “shortage of skills” and lack of “commitment to transformation”.

She points out that the Skills Development Act was promulgated in 1998 and for 18 years companies have had clear guidelines on developing the skills of their workforce.

If you are depressed by the poor ratio of Africans in top private sector management positions, you will be horrified by the report’s observations on skills development.

At top management level, the report says, the white group benefited the most from skills development opportunities.

“What the designated employers are reporting is that preferential treatment is given to the white group at the expense of the designated groups in terms of skills development,” it says.

So South African companies are training a higher proportion of their white employees over their black employees, yet they argue that a shortage of skills is the reason they don’t have black top managers.

I often hear business leaders and government officials say “transformation is a business imperative”.

The Commission for Employment Equity also says “transformation does make business sense. No business will survive in the long run unless it reinvents itself and constantly adapts to the ever-changing demands of an increasingly competitive global environment in which it operates.”

In this context, the term “transformation ” carries two connotations.

One refers to transforming the racial, gender and broader demographic profile of employees, suppliers and owners of a company.

The other is more of a global and universal connotation. This refers to transformation of a business model, culture or even the product or service offering of a company in order to remain competitive in a rapidly changing world. Think Über — a service that used mobile technology to transform the taxi industry.

Those who want to argue that transformation, in the South African context, makes business sense conveniently confuse the two connotations.

If that were true, how do we explain the lily-white top management teams that have led South African business since 1948 to date?

Even if one argues that apartheid protected the status quo until 1994, how then do you explain the past 22 years?

How is it that multibillion-dollar companies have not only flourished but more than doubled their value in the past 20 years, yet their best record, as a collective, over the two decades, shows the 10% white population controls almost 70% of all business decisions?

We all know about the meteoric rise of Capitec.

Fourteen years ago, the bank’s share price was R2.

Today it’s just under R600. I don’t recall the company ever crediting its amazing growth to transformation, notwithstanding the fact that its core customers are Africans.

It’s a farce. For most business leaders, transformation is not a business imperative and frankly, does not always make business sense.

For them, it is a government requirement that is at best an inconvenience and at worst a destroyer of value.

Case in point is the CEOs of mining companies. They argue their companies should only have to do one BEE transaction in their lives.

They say when the BEE shareholders eventually, and rightfully, exit to realise value, the company should be allowed to remain 100% white-owned into perpetuity.

To them it “makes no business sense” to require mining companies to always have meaningful black shareholder participation.

Let’s wake up and smell the coffee. Enough with the carrots — it’s time for the stick.

Take off the kid gloves and deal decisively with these transformation dodgers.

Or history will judge us as a bunch of cowards who dishonoured the blood of those who died for this freedom.