It is said that if you owe a bank a hundred dollars, you have a problem. But if you owe a bank a hundred thousand dollars, the bank has a problem. And as we have seen from history, if banks have problems, so do we.  

Since the National Credit Act was signed into law in 2007, unsecured consumer debt in South Africa has increased at an annual compound rate of 30%. By 2014, it amounted to some R1.5 trillion rand or 75% of South Africans’ disposable incomes - nearly 40% of the GDP. 

Sure, when African Bank collapsed last year it did appear that the bank was the one carrying the problem. But the bank had to be bailed out by the South African Government - ultimately, the taxpayer. The most extreme example of course is the sub-prime debt crisis in the United States that kicked off the global financial and economic crisis in 2008. Ultimately, we all share the problem. 

A growing number of people in South Africa are struggling with crippling debt, a symptom of the fact that South Africans are ranked as the world’s biggest borrowers according to the World Bank’s 2014 Global Findex Database study (http://www.fin24.com/Debt/News/South-Africans-worlds-top-borrowers-20150602).

The issue is that over indebtedness not only has a negative effect on the economy, but also on the state of mind for employees as it could lead to immense stress and depression. At Anglo American, we are committed to the wellbeing of our people and are particularly concerned about the effects of excessive individual indebtedness. And, without being paternalistic, we feel we have a responsibility to help our people free themselves from debt and to avoid the snares and consequences of unscrupulous lending.

As part of the wage agreement that brought an end to the 2014 platinum strike, Unions and the platinum mining companies committed to examine the employee indebtedness problem in depth, and see what could be done to provide some level of relief.  At Anglo American Platinum for example, audits revealed that about 26% of the workforce are heavily indebted (defined as someone who uses more than half of his or her salary to service debt.)  

The audit also highlighted that it was not only loose overspending that was the cause of this financial distress. Furthermore, most of the overspending was due to other factors including additional and extended families, repatriating money, and funerals, with the most common cause of indebtedness in our Platinum business being child maintenance. 

But it is the level and nature of the debt which has made the problem become more intense in recent years. The opening up of the unsecured lending industry through the relaxation of credit requirements has meant it has become all too easy for salaried employees to secure loans – both formal and informal. And many borrowers sign contracts unaware of the implications for their future cash flows. At a deeper level, it is the business practices of many of the credit providers and administrators who ensure that the debts themselves are both excessive in the context of employees’ ability to repay, as well as subject to extortionate, and in some cases illegal terms and conditions.

It was the extent of these excesses and exploitation that were the greatest surprise from the audit we conducted. As a result, we have intensified our ongoing investigation of every claim that is made against an employee’s monthly earnings. We have also introduced a financial wellness programme which is now available to all Anglo American employees. This programme comprises a financial literacy debt relief component with specific targets to improve employees’ disposable income, and also includes a challenge to the fees charged by lawyers when acting as debt administrators. 

In the Platinum business for example,  the programme has to date saved and refunded over R3 million by auditing administration and garnishee orders for irregularities and tackling collectors and lenders on these; reduced the number of garnishee orders from 6099 to 3329 over 3 years; reached a total improvement to monthly disposable income of R1 046, 173 through debt relief solutions; reduced debt commitments from 54% to 28% of net income using debt relief solutions; and is tackling various micro lenders for irregularities on loan agreements. This programme forms a part of a larger undertaking by Anglo American to address the indebtedness of its employees and similar or related programmes are planned at some of its other businesses in South Africa.

There are however still some key challenges, most obviously the take-up of these services by employees.  We estimate that to reach our R7million monthly target we need to bring 30 per cent of our employees into the programme. At present we are only at 5 per cent. 

The problem of indebtedness in mining communities is perhaps clearer than other sectors in the economy. But given the huge numbers at the national level it is clear that it is not confined to mining.  Is there more that can be done in other sectors and should all employers be upping the ante and taking the fight directly to their employees? A combined effort could yield significant results - what has struck us most is how much work needs to be done to break down these barriers and that once they are broken how quickly relief from financial distress can be achieved. 

With the economy getting tougher by the day, it is not a problem that will be solved by growth and unfortunately there is no standard quick solution. The lessons from the United States have shown us that when the house of cards that is excessive indebtedness comes tumbling down, it is all of us who pay, not the banks.  As businesses we have a major responsibility and a large role to play when it comes to both the wellbeing of the people in South Africa as well as the stability and wellbeing of our country’s economy.