There is no credit bubble in the wake of the recession says payday loan leader

29 October 2013 - Which Way To Pay

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South Africa does not have a credit bubble says Payday Loan giant

South Africa does not have a credit bubble in the wake of the recession, Roelof Botha, an economist and lecturer at the Gordon Institute of Business Science, said earlier this month. Presenting a study commissioned by payday loan provider Wonga.com South Africa, he said “the study indicated there is no credit bubble.” Botha, of the Gordon Institute of Business Science, and Ilse Botha, of the University of Johannesburg, conducted the study with the aim of clarifying the role of unsecured lending in stimulating key demand components.

Unsecured loans deemed very important

This highlights the importance of unsecured loans in South Africa’s economy as secured loans such as mortgages fall. South Africa’s economic growth rate has been lower than 3% while unsecured lending has gone into the double digits. "Without unsecured lending our economy would have been a fraction of what it is," Roelof Botha said on Wednesday. He said small and medium enterprises, often needed unsecured lending for working capital to help create jobs. He rejected the idea of a credit bubble in unsecured lending. Dr Botha said there was room for new players and further growth in unsecured lending, especially if the youth wage subsidy was introduced, and Eskom’s Medupi power plant kicked in.

Payday loan giant aggressively advertising in the media

Wonga has been advertising aggressively in the local media, raising questions about its growth. The company’s maximum loan size is R2,500 for first-time borrowers. Returning consumers had borrowed for a maximum amount of R3,800 until now, although the company could lend up to R8,000.

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