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Borrowers battle to pay debts says Afdawn

Microlenders are struggling to collect debts from over-borrowed customers, African Dawn Capital's chief executive Tjaart Kruger said.
He was speaking at the release of Afdawn's results for the six months to August

With the increased growth in unsecured lending, Afdawn's plan was to ensure that the credit quality of its loan book remained intact. Furthermore, the company was in talks with a view to winning mandates for its collections business, which would help increase revenue.

Kruger said customers in South Africa were over-borrowed. "It's been tough, definitely from an economic environment point of view.

"It's been a slow process to ensure that (customers) can afford (to make repayments on their loans). It's not difficult to lend, but it's difficult to collect."

In the second quarter of the year, unsecured credit rose to R131.3bn, amounting to 9.63% of the total outstanding credit in South Africa.

Afdawn has also been treading cautiously following a recovery from its financial challenges. In 2009, it suffered an increase in bad loans. It was later restructured and changed its focus to personal finance and debt collections.

Afdawn operates the Elite brand, the units of which are Elite Group, which offers personal loans and credit for housing finance, and Elite Medical Finance, which assist medical practitioners with medical aid claims and working capital.

Further, it owns debt recovery business Elite Collections.

Kruger said that for the six months to August, Elite made a profit of R900,000 and has grown its customer base to 25,000 from 10,000.

He said Afdawn's Elite Collections business had secured mandates worth R3m a month in legal collection work but the collection business recorded a loss of R600,000 for the six month period.

"The debt management team has also been actively marketing our service and expertise to independent third parties to collect their distressed debt under a management agreement," the company said.

"We are confident of securing a minimum of two separate mandates totalling at least R200m in the next two months, which we (expect) will increase revenue."

Source: Business Day via I-Net Bridge


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