The perfect financial solution
That was the large font header, highlighted in the bright red corporate branding colour of one of South Africa’s big four banks (Lets call them ASBA), that greeted me when I opened my post recently.
The purpose of the letter was to offer me the opportunity to apply for a loan of between R3000 and R150 000.
The brief write up that followed included the phrases “Life is full of little stresses…” and “you’ll be happy to know we are here to help.”
On the back of the page was a large table outlining the loan amount options including the total amount repayable over various periods ranging from 12 months to 7 years.
The fixed rate loan for R5000 heads up the table and so this is what I have opted to do the basic calculations on. According to the table I could borrow R5000 and in 12 months time I would owe R8113.14.
Those lending terms equate to a grotesque 62.26% effective rate of interest being charged for the year. To perhaps put this into context, the highest rate that same bank will pay me for a fixed deposit on my savings, for the same amount of money, over a 12 month period, is currently 5.3%. (No I have not left out an additional digit pre the comma.)
The total value repayable includes an “initiation fee” of R1140 – yes that’s almost 23% of the original loan amount. It also includes a monthly admin fee of R57 or R684 for the year – another 13.68% of the value of the original loan.
Now it is important to note that this bank is operating well within the legal framework of the National Credit Act and is not doing anything illegal by making this offer.
However, I could make a relatively strong argument that ASBA is really NOT trying to help and an even stronger case that this particular offering does not even remotely meet the definition of PERFECT FINANCIAL SOLUTION. I will concede that there is a good chance it will change your life (as they promise) but it is almost guaranteed not to be in the way most of us would envisage.
This institution has recently spent many millions of Rand’s on their latest advertising campaign which carries the catch phrase PROSPER – these campaigns tug at your emotions and go to great lengths to make you believe that they care about you and your financial future. But it is in their actions that we need to measure them, for therein lies the true nature of the beast. It raises an obvious question about this bank and the industry at large – Is this offering representative of the quality of all services and products on offer?
In a country where poverty is so prevalent and education levels are often not where they should be, product offerings like this should be highlighted and shamed. For surely it’s only the desperate, poor and uneducated that will even contemplate entering into this sort of contract. Surely this behaviour will only ensure that the poor get poorer and more desperate. The long term ramifications of this pattern can be observed by looking to the north of our borders where poverty and disillusionment have lead to some rather desperate actions by governments to stay in power. We are approaching our own elections in May, which marks the 20 year point in the journey of a post apartheid South Africa. We need a prosperous and educated population to take this country to its true potential. Does this type of product represent the progress we need to achieve this dream? I think not.
We at White Investments aspire to offer a service that is honest and transparent but more than that, we want you to succeed and we want to utilise our investment knowledge and experience to partner with you in that success.
If you have any questions or want further advice on how to structure your investments or improve your personal finances please contact us at firstname.lastname@example.org