With rising COVID-19 cases, South Africa took the bold step of entering into a national lockdown in March this year. Retrospectively termed a Level 5 lockdown, our national response to the emergence of COVID-19 meant that various industries had to suddenly close as South Africans remained at home to help our medical and essential service providers prepare for a wave of COVID-19 cases.
Remind me, what restrictions did level 5 introduce?
Save for essential service providers in the medical, emergency, and safety industries, Level 5 lockdown requires that South Africans remain in their homes and only leave to purchase essential items such as food or other home supplies. This meant that many industries – such as the hospitality or entertainment industry – were totally unable to operate, while many other businesses had to move to offer online services.
At Wonga, we’ve noted changing behaviours and interesting insights into the changing wellbeing of consumers – and we’ve explored how borrowing behaviour changed over the course of our Level 5 lockdown to understand just how South Africans were affected.
How did we analyse these findings?
We analysed our customer’s loan applications over the course of the months of February to April by using purely anonymised Wonga application data, where no personally identifiable information was recorded. Among the information we analysed, we unpacked changes in loan applications with regards to loan amounts and terms applied for, credit scores, the applicant’s employment industry and provincial location.
Our research also used data from TransUnion’s Financial Hardship Survey.
Did South Africans borrow less frequently?
During the course of the Level 5 lockdown, TransUnion’s Financial Hardship Survey noted a drop in the number of credit applications made across the credit industry where 40% fewer applications were made in April as opposed to March. While these volumes are now approximating values seen before lockdown, the change means that the hard lockdown may have forced loan applicants to review their borrowing habits.
The change in behaviour may mean that South Africans took a more cautious approach to borrowing, or – should they have been unable to provide proof of regular income due to job losses – may not have been able to apply at all.
We noted a 32% reduction in the number of customers who held more than one short-term loan with another lender, meaning that customers borrowed far less as opposed to what they would usually.
Notably, loan applications are only recorded through registered lenders who comply with the National Credit Act. Fewer recorded loan applications may mean that South Africans turned to borrowing through informal lenders, or instead borrowed from their friends or family.
Did people from certain industries borrow more, or less?
Interestingly, we saw that customers from certain industries – particularly those who remained active as essential services through the hard lockdown – were far more likely to apply to borrow from us.
While we saw more applications from people in the health, electricity, mining, legal services, and transportation sectors, there were fewer applications from the hospitality, business consultancy, cleaning, leisure, culture and publishing industries.
When looking at applicants’ specific professions, we also noted an increase in applications from nurses and truck drivers, as well as people in services and management.
Could the lockdown have encouraged people to borrow online, instead of visiting a walk-in service?
The hard lockdown changed the way South Africans engage with financial services – and borrowing online was no exception. While Wonga continued to operate throughout the hard lockdown, we noted that many other lenders closed their online services or physical outlets.
Remind me, what is debt-to-income?
Debt-to-income, also called a DTI ratio, is a measure of how much debt a person carries in proportion to their income. Notably, it isn’t an overall measure of a person’s wealth in the sense that the ratio does not compare a person’s total assets such as investments or property, but rather compares direct sources of income – whether from an investment or job – against how much debt they have.
How did debt-to-income ratios change?
Surprisingly, we noted a 3% decrease in applicants’ average debt-to-income ratio, which means that South Africans had slightly lest debt in proportion to their direct income.
This could be motivated by several reasons – for example, South African consumers could have used surplus income during the hard lockdown to settle their loans. Alternatively, if South Africans chose to take payment holidays, extend their payment terms, or otherwise consolidated their debt, this could have further improved their debt-to-income ratio.
How were credit scores affected?
Over the course of the hard lockdown, we noted that 51% of Wonga applicants had a higher credit score compared to the time of their previous application before the lockdown, while each applicant’s credit score increased by an average of 25 points against their TransUnion score, which is out of 850.
The increase in applicants’ credit scores could be attributed to fewer defaults on behalf of borrowers, which in turn could be due to more customers opting for payment holidays.
What did we learn about how South Africans borrow?
At Wonga, our short-term loans are designed to help our customers access opportunities, manage emergency expenses, and take their next step with a loan that affords them control and flexibility.
Over the course of the hard lockdown, our research shows that South Africans are potentially less likely to apply for loans when their financial security is compromised; and that short-term loans can help people elevate themselves and access opportunities.