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South Africa unsecures its banks

Efforts to bring finance to the masses have brought an unsecured lending boom to South Africa, with home improvements loans at the forefront. Margins are high. But banks are increasingly using the product for higher-income earners too. Is this just another retail credit bubble?

Comrades [...] for too long we have been marginalized for using the wrong stuff for the job," goes the rant of a spoof politician in the latest advert for South African DIY retailer Cashbuild.

The increasing amount of unsecured credit taken out in South Africa is, in its own way, revolutionary. It is overthrowing parts of the country’s entrenched banking hierarchy. Building materials stores have been perhaps the single-biggest beneficiary in the consumer goods sector, as a stagnant housing and mortgage market has spurred a wave of DIY home improvements among higher-income earners who are now less able to move house.

The issue has risen up the policy agenda too. The growth in unsecured credit was one of the key issues discussed at a meeting between banking chiefs and finance minister Pravin Gordhan in late August. After the meeting the ministry said banks "could do more to ensure that they lend responsibly and do not contribute to household over-indebtedness".

Over the past few years, all of the big-four entrenched financial institutions – Standard Bank, First Rand, Absa and Nedbank – have seen customers migrate to the rapidly growing unsecured credit specialists: African Bank and Capitec.

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