Is Debt Undermining Good Corporate Citizenship

While the private sector gives with one hand, too often it is busy taking back with another. This is especially true with unrealistic debt levels encouraged in poor communities that counteract any good achieved by corporate social investment (CSI) and companies in general. GreaterGood's CEO, Bridgit Evans takes a critical look at the poverty trap that debt can create.

Working on a semi-urban development project in Atlantis recently, we found through surveys that the average salary of participants is less than R3 000 per month and more than half of these individuals are illiterate. No huge surprises in that. But almost all of our respondents have been granted levels of credit that they could not afford to repay.

Fine print

It soon became clear that they did not understand the fine print when acquiring credit. Despite legislation aiming to protect vulnerable borrowers from unscrupulous lenders, many of the people surveyed had been granted personal loans of up to R10 000 each from the same bank where the repayment was R26 000 over three years per loan. Furniture stores, clothing retailers, appliance and building supply stores are equally at fault.

One woman spoke in despair of how she had received a call from an appliance store to say that she had been such a good customer that the store was going to give her R20 000 credit. She had been flattered and is now stuck paying back R1 570 per month on a salary of just R2 888.

Financially unaware

Indeed, this group of people were so financially unaware that when shown two written amounts, one of R125 261 and one of R24 500, many were unable to say which amount was the larger.

Good corporate citizenship includes business respecting individuals, communities and their environment in ways that are reflected in their product offerings. These offerings include credit availabilities and the marketing of these in ways that are themselves responsible and do not trap the poor in debt.

Poverty trap

South Africa’s future security relies heavily on job creation. However, if salaries are continually being sucked into debt repayment on consumables (as opposed to assets), then the poverty trap remains and there will be nothing left for personal and familial investment into next generations through education or asset acquisition.

As CSI practitioners move into more strategic positions in companies, it is to be hoped that their efforts are not undermined by some of their own business practices.