If you are the owner of any kind of business here in South Africa you are likely to have depended – from time to time at the very least – on the availability of short-term borrowing. As the owner of that kind of business, you might well have welcomed access to just that kind of short-term credit to your customers too.
The ability to borrow as and when the occasion demands may be one of the most important drivers of economic activity and development for both businesses and their customers, certainly at a time when the country’s credit rating remains low.
The good news is that these are all situation where a newcomer to the financial services scene in this country may help. The newcomer is a company called Wonga (you might be familiar with them already if you’re a UK resident) and its business is the provision of a particular kind of short-term borrowing to individuals called the payday loan.
The term is largely self-explanatory – cash is advanced to a borrower in the expectation of repayment being made on the next occasion a pay cheque is received (or very soon thereafter) and applications may be made entirely online. But more about the service later on.
The Sources of Funding
Firstly, why is the appearance of this new service so exciting?
However critical and obvious that reliance on short-term credit, the grass roots of the South African economy may have been held back by the traditional difficulty of actually realising the borrowing required – whether you are the supplier of goods and services or the eager consumer.
In either case, the quick and easy access to funds from the traditional banking sector is likely to have proved long-winded and laborious. The difficulty might too often have acted as a brake on the commercial development that might otherwise have been achieved.
The impact on local development arising from some of the difficulties in accessing requisite funding is explored in some depth by the German Development Institute.
The Contribution at a Grass Roots Level
For all the academic research into South Africa’s need for access to credit and borrowing, there are some businesses already active in the provision of just such facilities – and they are operating very much at the grass roots level.
Take for example, the individual’s need for cash to meet some unexpected emergency, to take advantage of a special offer at the local store, the need for temporary support for the cash flow of your business, or simply to buy a product or service ahead of the immediate time for which payment is required. These are all situations where the provision of short-term credit may be appropriate.
This is where companies like Wonga fill the breach. Even a relatively small cash advance might make all the difference in the short term, so the provision of short term loans online has the potential for making a notable impact.
How does the Service Work?
In this instance, the first time borrower may choose any sum up to R2,500 and decide on repayment terms up to 46 days. The online application process immediately displays the total cost of the chosen transaction (namely the repayment of the amount borrowed, plus the total interest to be charged, together with the relevant administrative fee).
An online application may be fast enough, but the speed with which it is processed may also be a particular attraction. Of course, basic checks need to be made about the applicant’s creditworthiness and ability to repay the chosen loan, but once formal approval has been given (generally within 24 hours) then the transfer of the requested monies may be made within just minutes.
With consumers having easier access to credit, this could see spending levels increase – which can only benefit the economy.