There is speculation that a ‘bubble’ is developing in the unsecured loan market.   Five years ago the High Court ‘rescued’  Implats when management and the trade unions agreed to consolidate the debt of R100 million incurred by about 30,000 employees.   A micro-lender, through the ‘medium’ of a few employees, failed to persuade justice Landman that the collective agreements were unconstitutional and in breach of the employment contracts.

In 2006 in Kesolofetse v Impala Platinum Ltd  [2006] 6 BCLR 766; [2006] JOL 17039; (2006) 27 ILJ 1411 (HCNWM) Landman J decided the issue in a most interesting manner.

Almost five years ago the mining company Impala Platinum Ltd (“Implats”) experienced  labour unrest because of the dissatisfaction of employees and their belief that they were being unfairly treated by micro-lenders.   Implats discovered that approximately 30,000 employees owed a total of about R100m to micro-lenders at interest rates of 30% per month.

Implats limited access of micro-lenders to the mine rehabilitated those employees who were severely burdened by debt.   Implats consolidated the debts through Teba and became a  surety for repayment.

Collective agreements were concluded with trade unions but despite this a few employees backed by a micro-lender applied to the High Court for an order requiring Implats to abide by written instructions signed by the employees.

One of the arguments was that Implats had refused to respect the employees’  constitutional right to use an agent and that contractual autonomy was an aspect of freedoms guaranteed by the constitution.

Fortunately for Implats justice Landman, with his vast experience and knowledge of employment and industrial relations law, held that the employees had waived any rights they may have had.   In their employment contracts they had consented to Implats exercising certain prerogatives.   These included an instruction covered by the collective agreements and the High Court held the arrangements were fair and reasonable.

Simon Mantell runs a BEE level-two biscuit factory in Cape Town.   Recently his article Give blue-collar workers their economic place in the sun was first published in Business Day and here are some extracts.

IT IS an indubitable fact that South Africa’s black economic empowerment (BEE) model is a smoke and mirrors charade that has catapulted many politically connected individuals into the economic stratosphere with the net result being the tarnishing of the achievements and success stories of real BEE.

A real opportunity exists to bring true BEE to the masses in an affordable and practical manner.     Ironically, the fulcrum of such an initiative is to be found in the much-maligned micro lending and retail-credit industries.     Decisive leadership in the private and public sectors can turn these businesses on their heads and ensure blue-collar workers are empowered with the necessary access to affordable finance.

The systematic manner in which listed credit providers in the micro lending and the retail (white goods and clothing) spaces have denied the masses of hard-working black blue-collar workers their economic place in the sun is a heinous crime.     The fact that this “mugging of the masses” has continued to take place under our first democratically elected government illustrates that either the government is complicit or simply incapable of solving real issues.     The recent pronouncement by Trade and Industry Minister Rob Davies that the National Credit Regulator would be investigating the micro lending industry is a little late in the day given the recent mining and transport labour crises that have largely been about take-home pay packets whose size is dramatically affected by emolument attachment orders (EAOs) in favour of listed credit providers.

The current micro lending credit bubble and the recent violent and tragic strikes are the perfect opportunity for the stakeholders to work in partnership at last to ensure true BEE for the masses.

From the government’s side, a first requirement would be to register employers who actively manage their employees’ debt and applications for credit as “responsible credit-managing employers” on a national database — with a further point-scoring category allocated for BEE verification.

Thereafter, legislation would make it mandatory for any credit provider to ascertain whether a potential client is employed by an employer registered on the database.     Should credit be provided without the approval of such a registered employer, all rights to an EAO in favour of the credit provider would be waived.     The effect of such legislation would be to render such a loan as unsecured in the true sense of the word — indiscriminate lending at exorbitant rates would cease overnight.

A business deciding to assist its employees actively in the management of their debt would register as an employer on the government’s database.     Thereafter, it would negotiate with its commercial bankers to consolidate all the debt of “identified and responsible employees” into one loan per employee at far more attractive rates than charged at present.     The individual employee would still be liable for his own debt, although the employer would facilitate the payment to the commercial bank in much the same way as facilitating an EAO.     The big difference would be that the repayment would be affordable due to fair interest rates and no hidden charges.

More than 60% of blue-collar workers in South Africa are employed by small and medium-sized enterprises.     These businesses are less automated and more dependent on individual employee productivity.     Close relations between the owners and the employees makes this sector most suitable for the credit management programme envisaged above.

While criticism of the micro lending industry has become de rigueur, there has been no attempt to offer practical solutions to empower the masses by bringing them into the real economy in a meaningful way.

The above represents the kernel of an idea that can be developed by retail banks serious about profits but equally serious about fair play and true BEE for the masses.

Can the government and the private sector afford to procrastinate any longer?