The debt trap: the indebtness of the poor in South Africa
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Providing international loans to governments in developing countries is seen as contributing to the upliftment and development of the Third World, according to a set of pre-determined criteria. From the neo-liberal capitalist perspective, this loan provision is widely conceived as one of the answers to poverty alleviation. Despite this, many Third World countries continue to be steeped in debt through these loans and stringent conditions. On a local level, micro-finance for small business development is seen as a tool for development and alleviating poverty. Millions of Rands have been made available in South Africa for micro-finance by government and backed by international financial institutions. As with international debt, already we are seeing a similar situation at the grassroots level of the poor and low income groups being indebted through micro-loans. They are in arrears with debt repayments, are over-indebted and their personal poverty is deepening as a result. In this thesis, I explore the different aspects impinging on low-income groups that are contributing to their indebted and poor situation. I explore the neo-liberal perspective, namely the GEAR strategy, as well as the micro-finance initiative against the backdrop of international and national debt tied to the IMF and World Bank. The glaring similarities between national and personal indebtedness are then examined. The focus then shifts to a micro-level case study of a group of low-income indebted people living in the Cape Metropolitan area. A range of elements from positivist, structuralist and humanist perspectives is employed to evaluate the circumstances of this sample. Both quantitative and qualitative research tools are used to construct a socio- economic profile of the indebted person. Qualitative methodologies, such as in-depth personal interviews and focus group discussions, are used to elicit information from the sample and respondents were selected through purposive sampling methods for this reason. Qualitative methodologies are employed in order to yield a deeper and more insightful understanding of the intricate web of personal indebtedness of the case study group. Quantitative methodologies included a questionnaire survey that was administered to the case study group and a stratified random sample was used to select participants. The summary profiling indicates that it is mainly single Xhosa-speaking women who are indebted and that all respondents are grant recipients. Further findings show that not only are respondents indebted to money-lenders and/or credit stores, but also to the local “spaza shop” and to the municipality in terms of their inability to pay for services as well. Serious concerns regarding lending practices, interest rates and absence of contracts were highlighted. Most disturbing is that it appears that a pattern of indebtedness is being established between generations. I argue that current legislation is inadequate and that the proposed new Consumer Credit legislation be translated into action otherwise the pattern of indebtedness will continue to persist. Further arguments are made for access to appropriate banking facilities and the importance of personal and national savings is stressed, if debt freedom and genuine development is to take place. I advocate for a re-thinking of the GEAR strategy, for a Basic Income Grant and for the building of popular movements to lobby and demand these changes and initiatives. The rationale put forward is that indebtedness is a symptom of the larger problem of poverty and unemployment; this therefore necessitates meaningful structural changes to address these overarching problems.