Study on Credit Amnesty Proposal for the Portfolio Committee on Trade and Industry

1. Amnesty Project Presentation Presenters Ms Z Ntuli: DDG-the dti MR. A Potwana D-the dti Ms N Motshegare: CEO-NCR MR L Mashapa: Company Secretary- NCR

2. Table of Contents • Purpose • Background • Context of Credit Amnesty • Primary Aims of Credit Amnesty • Methodology • NCR Impact Assessment • Perceived Least Risk Proposal • Perceived Medium Risk Proposal • Perceived High Risk Proposal • Key Recommendations • How the Credit Amnesty can be a Success • Conclusion

3. Purpose • To Brief the Portfolio Committee on Trade and Industry on the Study Regarding the Credit Amnesty and • To Request the Select Committee to approve: • Option Two, • Recommendations, • Legislative Consideration • Form of Credit Amnesty • Timelines • Implementation • Monitoring and Evaluation

4. Background • The Select Committee on Trade and International Relations requested the dti to look at the problem of Credit Impairment in relation to the previous Credit Amnesty that was resorted to in 2007/2008. • In this regard the dti cursorily determined whether or not the previous Credit Amnesty was effective or achieved the intended purpose • Without prejudging the above determination, the dti requested the NCR to determine empirically issues that may alleviate Credit Impairment • Consultation with relevant stakeholders in the industry was held • An Interim Finding was presented to the Select Committee and it was agreed that by February 2013 the Study should have been finalised. • The Study was completed by February/March 2013 and the dti considered the Report in March 2013. • Below follows the Discussion and possible Recommendations.

5. Context of credit amnesty • Credit is a key enabling mechanism for investment and development. • A failure to facilitate widespread access to credit often results in significant opportunity cost to entrepreneurs and the wider economy. • Credit spurs consumer spending, a key driver of economic growth. • Inaccessible or expensive credit hinders growth. • Access to a sustainable credit market is essential to all development goals.

6. Primary aims of credit amnesty • Reducing credit impairment by addressing its causes • Removing barriers to credit and assisting those consumers who can afford credit to access credit. • Embarking on “restorative justice” • Achieving the goals of the National Credit Act (NCA) • Assisting consumers impacted by economic recession • Redressing failure of credit providers to consider broader economic factors • Removing barriers to employment • Reducing over pricing • Stimulating economic growth • Broadening access to credit providers

7. Methodology • Identify the causes of credit impairment • Consult with key stakeholders • Conduct impact assessment to determine scope of data removal • Draft affordability assessment guidelines • Conduct research on discretionary income • Draft adverse listing rules • Find means to incentivise repayment of debts • Ascertain causes of high cost of credit

8. National Credit Regulator (NCR) Impact Assessment The NCR appointed an independent firm of actuaries and analysts to conduct an impact assessment of the likely impact of various data removal scenario, including: • number of consumers' impacted; • degree to which consumers' impacted; • credit acceptances; • risk to credit providers' portfolios

9. Perceived least risk proposal (Option One) • Removal of adverse information listings having a value equal to or less than R10,000 irrespective of non-payment; • Removal of all paid up adverse information listings on an ongoing basis; • Removal of all paid up judgments on an ongoing basis. • Number of consumers impacted: 1,516,960 Note: the dtirecommended this proposal to the select committee as it the proposal that would have the least adverse impact on credit providers' risk portfolios.

10. Perceived medium risk proposal (Option Two) • Removal of all adverse information listings irrespective of value and irrespective of non-payment; • Removal of all paid up adverse information listings on an ongoing basis; • Removal of all paid up judgments on an ongoing basis. • Number of consumers impacted: 1,605,763 Note: this proposal would result in a small increase in credit providers' risk portfolios and may result in smaller credit providers closure and in a decrease in the supply of credit. The Select Committee opted for this proposal

11. Perceived highest risk proposal (Option Three) • Removal of all adverse information and judgment listings irrespective of value and irrespective of non-payment; • Removal of all paid up adverse information listings on an ongoing basis; • Removal of all paid up judgments on an ongoing basis. • Number of consumers impacted: 2,180,774 • Impact on credit risk portfolios: No impact except for microloans increase by 1.3%. (Please see section 8.4.3 of the report) Note: this proposal would result in an increase in credit providers' risk portfolios and may result in smaller credit providers closure and in a decrease in the supply of credit. This proposal was rejected by both the dtiand the Select Committee.

12. Key recommendations • to proceed with a responsible amnesty by removing somecredit information; • paid up judgments and adverse information listings should be removed on an ongoing basis following payment of the underlying debt as is done in Brazil; • Credit providers should be required to conduct more comprehensive affordability assessments; • Credit providers should be required to use discretionary income guidelines • Credit providers should be required to prove that consumers have the discretionary income they claim; • the NCR should continue to audit credit providers' affordability assessments on an ongoing basis; • the NCR should prosecute all cases of reckless lending; • listing rules are required to ensure consumers are properly notified and given sufficient time to remedy default; • credit literacy programs should include NCR materials both in credit retail outlets and elsewhere throughout the credit lifecycle; • abuses such as collecting prescribed debt, inappropriate EAO/garnishee orders and exorbitant credit life insurance should be prevented.

13. How Can Credit Amnesty be a Success? • Consider Legislative Amendments • Legislative Amendments should deal with ongoing removal of adverse information • The NCA should be aligned with legislation that deal with Debt Collection and Garnishee Orders • What Form Credit Amnesty should take? • The Minister should be empowered to issue Regulations in order to effect this Credit Amnesty • Timelines • A Notice and Procedure to be followed should be drafted on Credit Amnesty for Issuance by the Minister • Public should be consulted for thirty days • This process of consultation and issuance of the Notice can start and finalised by June 2013 and September 2013 respectively • Implementation • Implementation of the Notice may be effected on 1st October 2013 • Monitoring and Evaluation • Monitoring should commence immediately and evaluation should happen on 31 March 2014 and the results (if any) should be implemented by April 2014.

14. THANK YOU