According to Brett Van Aswegen, who has been running the digital lending platform Wonga Online for almost ten years, responsible regulated lenders have a duty to enhance the financial literacy of African consumers. South Africa boasts a well-developed formal financial sector, offering a wide range of products, accessible in-person and online channels, and competitive borrowing rates. Despite this, the country faces a significant issue with high levels of indebtedness. Studies from 2022 indicate that consumers had 20% more unsecured debt on average compared to 2016, indicating a lack of financial literacy among the population.
Financial literacy entails understanding financial products and making informed decisions about their usage. It also involves being familiar with budgeting, saving, investing, and debt management to improve financial well-being. Unfortunately, poor levels of financial literacy in South Africa contribute to increased indebtedness, missed repayments, and credit defaults.
Efforts have been made by the state and other organizations to improve financial literacy in the country, but progress is hindered by financial exclusion. Many households in poorer townships lack access to the formal lending system, leading them to accumulate expensive debts on credit cards or approach unregulated neighborhood lenders, known as mashonisas, for short-term loans at high-interest rates, sometimes exceeding 50%. This situation inevitably leads to repayment difficulties for the financially excluded.
To address this issue, Van Aswegen advocates that lenders take more responsibility for educating borrowers directly. By providing financial literacy lessons, lenders can equip borrowers with a better understanding of financial products and associated risks, empowering them to make well-informed decisions.
Wonga has also been involved in inquiries into the informal lending market in South Africa and is committed to a leading role in tackling the challenges faced by at-risk customers in this sector. By promoting financial literacy and responsible lending practices, formal lenders can play a pivotal role in improving the financial well-being of South African consumers.
Brett was enthusiastic to view this as a chance for the best, most progressive lenders to stand out. He believes those businesses that are the most successful in guiding potential customers towards a sustainable path of financial literacy growth will reap the rewards in the long term in a win-win scenario:“I encourage lenders to lead the way through educational initiatives which will ultimately create positive financial behavioural change.”