Insist on finding long term sustainable solutions for Sector MFSA - PowerPoint PPT Presentation

RHLF P RESENTATION Revised Caps on Rates, Fees and Credit Life Insurance Presented by: Mark Seymour

C REDIT L IFE

C REDIT L IFE : P ROCESS • 24 November 2015: Meeting with Norton Rose Fulbright • 1 December 2015: Meeting with DTI • 3 December 2015: Meeting with DTI • 15 January 2016: MFSA Submission

H ARMONISATION AND R ATIONALISATION • Necessary acts needs to be explored before any decisions are made • Harmonisation & rationalisation of legislative changes

A CTUARIAL STUDY OF C REDIT L IFE I NSURANCE • Actuarial study and economic impact analysis required • Business must be financially sound

P OWER TO PASS THE REGULATIONS • Views of the DTI & Department of Finance be taken into consideration • Details of such consultation

A PPROACH AND A TTITUDE • Insist on finding long term sustainable solutions for Sector

MFSA S UBMISSION : 15 J ANUARY 2016 Financial Definitions Costing Soundness Actuarial Powers of Rationality study Regulators

I F WE DO THIS WRONG …

R ATES & F EES

E CONOMIC M ODEL • Reliable supply of unsecured loans: • credit providers must operate profitable & earn a reasonable return • Efficiency is key

C OST D RIVERS 2007 - 2015 Increase Annual Costs for Credit Increase Since 2007 11% Audit Fees 89% 46% Bank Charges 367% 14% Travel: Fuel & Oil 112% 17% Printing & Stationary 138% -3% Telephone & Postage -21% 6% Rent & Utility 48% 6% Salary 48% 12% Management Fee 100%

A PPROACHES TO IMPROVING EFFICIENCY • Increased scale through growth • Require funding , • Enables lower cost structures (buying power).

C URRENT CHALLENGES • Credit industry operating in mature market • limited ability to grow in the short term market • Funders exiting SA market • high risk and uncertainty, • limiting the ability to grow, • High level of compliance requirements • Increasing the cost to grant credit

NCR S TATISTICS : G ROWTH IN ST DISBURSEMENTS 2007 – 2015 (qtr2) 2007 2015 Up to 1 month 442,305,973 2,617,028,179 2-3 Months 231,493,652 177,582,979 4-6 Months 209,397,352 1,132,109,476 Total 883,196,977 3,926,720,634

NCR S TATISTICS : D EV . C REDIT DISBURSEMENTS 2007 – 2015 (qtr2) 2012 2015 Total 7,650,773,837 3,879,390,955

G ROWTH IN NO OF ST LOANS 2007 – 2015 (qtr2) 2007 2015 Up to 1 month 608,675 1,489,832 2-3 Months 116,953 66,071 4-6 Months 81,461 441,960 Total 807,089 1,997,863

NO OF D EV . C REDIT A GREEMENTS 2007 – 2015 (qtr2) 2012 2015 Total 293,204 125,443

A VERAGE L OAN S IZE ST L OANS 2007 – 2015 (qtr2) 2007 2015 Up to 1 month 726.67 1,756.59 2-3 Months 1,979.37 2,687.76 4-6 Months 2,570.52 2561.56 Total 1,094.30 1,956.46

Costs Composition per loan – R1,880 x 2 Months 700 600 500 Total Cost R575 (31% of Loan Value) 400 300 200 100 0 All Fixed Costs Corp Costs Salaries Variable Costs Bad Debt COF

Cost of Granting Credit – R1,880 Loan x 2 Months 600 500 400 300 200 100 0 Total Initiation Maintenance Risk/COF

Cost of Granting Credit – R1,880 Loan x 2 Months 600 MFSA Proposed: R610 (32% of Loan Value) Current Income: R498 (26% of Loan Value) 500 Total Cost R575 (31% of Loan Value) DTI Proposed Rates: R486 (25% of Loan Value) 400 300 200 100 0 Total Initiation Maintenance Risk/COF

P RINCIPLE A PPLIED • Initiation Fee • Table B Reg 42(2) – Max initiation fee: • Unsecured - R165, plus 10% on amount above R1,000, • Developmental – R550, plus 10% on the amount above R1,000, but • Reg 43(3) provides that initiation fee may never exceed 15%. • Principle applied in Impact Assessment: • 15% of the Loan Amount up to R1,100, • With Unsecured, if larger than R1,100, then R165 plus 10%, • With Developmental, if larger than R1,100, then R550 plus 10%.

P RINCIPLE A PPLIED • Service Fee: • Regulation 44 • Pro-rata principle per Calendar Month that loan agreement is entered in, • With a loan opened and closed in the same calendar month, fee is pro-rata, • In a multiple month loan, the 1 st month (that the loan is entered into) the service fee is pro-rata, for the following months it is R60 per month. • Principle Applied in Impact Assessment: • 1 month loan (22 days) = R44, • 4 month loan = R44 + (R60 x 3).

P RINCIPLE A PPLIED • Interest: • Regulation 42(1) • Short-term Loans • Interest of 5% per month can be charged on the 1 st loan in a calendar year, • Interest of 3% per month can be charged on follow-up loans in a calendar year. • Unsecured Loans • Repo-rate + 21%. • Developmental Credit • Repo-rate + 27%.

A VERAGE S HORT - TERM LOAN R1,880 OVER 2 MONTHS Post New Caps 1st Loan of Mixed Current Calendar Year Multiple Loan Portfolio Scenario Scenario Scenario Scenario

A VERAGE LOAN R1,880 OVER 2 MONTHS Post New Caps 1st Loan of Mixed Current Calendar Year Multiple Loan Portfolio Scenario Scenario Scenario Scenario Loan Amount 1,880 1,880 1,880 1,880 Initiation Fee 238 243 243 243 Monthly Fee 100 104 104 104 Loan Term (days) 52 52 52 52 Interest Rate (per month) 5% 5% 3% 3.2% Interest 183.56 183.99 110.40 117.76 Installment 1,200.78 1,205.50 1,168.70 1,172.38 Total Payment (Excl VAT) 2,401.56 2,410.99 2,337.40 2,344.76

A VERAGE LOAN R1,880 OVER 2 MONTHS Post New Caps 1st Loan of Current Calendar Year Multiple Loan Mixed Portfolio Scenario Scenario Scenario Scenario Loan Amount 1,880 1,880 1,880 1,880 Initiation Fee 238 243 243 243 Monthly Fee 100 104 104 104 Loan Term (days) 52 52 52 52 Interest Rate (per month) 5% 5% 3% 3.2% Interest 183.56 183.99 110.40 117.76 Installment 1,200.78 1,205.50 1,168.70 1,172.38 Total Payment (Excl VAT) 2,401.56 2,410.99 2,337.40 2,344.76 Revenue Earned per loan 521.56 530.99 457.40 464.76 No of Loans per month 140 140 140 140 Revenue Earned per month 73,018 74,339 64,035 65,066 Expenses 66,107 66,107 66,107 66,107 Operating Expenses 54,000 54,000 54,000 54,000 Bad Debt 12,107 12,107 12,107 12,107 Profit 6,911 8,232 (2,072) (1,041)

A VERAGE LOAN R1,880 OVER 2 MONTHS Post New Caps 1st Loan of Mixed Current Calendar Year Multiple Loan Portfolio Scenario Scenario Scenario Scenario Loan Amount 1,880 1,880 1,880 1,880 Initiation Fee 238 243 243 243 Monthly Fee 100 104 104 104 Loan Term (days) 52 52 52 52 Interest Rate (per month) 5% 5% 3% 3.2% Interest 183.56 183.99 110.40 117.76 Installment 1,200.78 1,205.50 1,168.70 1,172.38 Total Payment (Excl VAT) 2,401.56 2,410.99 2,337.40 2,344.76 Revenue Earned per loan 521.56 530.99 457.40 464.76 No of Loans per month 140 140 140 140 Revenue Earned per month 73,018 74,339 64,035 65,066 Expenses 66,107 66,107 66,107 66,107 Operating Expenses 54,000 54,000 54,000 54,000 Bad Debt 12,107 12,107 12,107 12,107 Profit 6,911 8,232 (2,072) (1,041) Capital Employed 263,200 263,200 263,200 263,200 Drop in Revenue -2% 12% 11%

12 M ONTH LOAN OF R 7,500 Developmental Credit Unsecured Credit Current New Rates Current New Rates Scenario Scenario Scenario Scenario Variance Variance Loan Amount 7,500 7,500 7,500 7,500 Initiation Fee 1,150 1,150 - 800 815 15 Monthly Fee 50 60 120 50 60 120 Loan Term (months) 12 12 12 12 Interest Rate (per month) 34.3% 33.5% 34.3% 27.5% Interest 1,689.97 1,648.70 (41.27) 1,621.59 1,289.98 (331.62) Installment 911.66 918.23 6.56 876.80 860.41 (16.38) Total Payment (Excl VAT) 10,939.97 11,018.70 10,521.59 10,324.98 (196.62) 78.73 Revenue Earned per loan 3,439.97 3,518.70 78.73 3,021.59 2,824.98 (196.62) Revenue (%) 2.29% -6.51%

24 M ONTH LOAN OF R 17,500 Developmental Credit Unsecured Credit Current New Rates Current New Rates Scenario Scenario Scenario Scenario Variance Variance Loan Amount 17,500 17,500 17,500 17,500 Initiation Fee 2,150 2,150 - 1,000 1,050 50 Monthly Fee 50 60 240 50 60 240 Loan Term (months) 24 24 24 24 Interest Rate (per month) 34.3% 33.5% 34.3% 27.5% Interest 7,773.52 7,575.55 (197.97) 7,318.59 5,773.07 (1,545.51) Installment 1,192.65 1,194.40 1.75 1,125.77 1,073.46 (52.31) Total Payment (Excl VAT) 28,623.52 28,665.55 27,018.59 25,763.07 (1,255.51) 42.03 Revenue Earned per loan 11,123.52 11,165.55 42.03 9,518.59 8,263.07 (1,255.51) Revenue (%) 0.38% -13.19%

36 M ONTH LOAN OF R 27,500 Developmental Credit Unsecured Credit Current New Rates Current New Rates Scenario Scenario Scenario Scenario Variance Variance Loan Amount 27,500 27,500 27,500 27,500 Initiation Fee 2,500 2,600 100 1,000 1,050 50 Monthly Fee 50 60 360 50 60 360 Loan Term (months) 36 36 36 36 Interest Rate (per month) 34.3% 33.5% 34.3% 27.5% Interest 18,428.01 18,002.24 (425.76) 17,506.61 13,686.34 (3,820.26) Installment 1,395.22 1,396.17 0.95 1,327.96 1,233.23 (94.73) Total Payment (Excl VAT) 50,228.01 50,262.24 47,806.61 44,396.34 (3,410.26) 34.24 Revenue Earned per loan 22,728.01 22,762.24 34.24 20,306.61 16,896.34 (3,410.26) Revenue (%) 0.15% -16.79%