It's estimated that up to R20bn worth of debt could be written off under the controversial new debt relief bill signed into law by President Cyril Ramaphosa earlier this week.
The National Credit Amendment Bill will include provisions allowing indebted consumers who earn less that R7,500 per month to restructure their debt.
But the bill has been criticised by the banking industry, which says it will have a detrimental impact on the ability of banks to be able to lend to low-income customers.
The economic impact this bill will have is severe.— Cas Coovadia, Managing director - Banking Association of South Africa
Coovadia says while the intention of the government to address over-indebtedness is a valid one, successful debt restructuring methods are already in place.
We have said that we should actively get those up to scale rather than have a different piece of regulation.— Cas Coovadia, Managing director - Banking Association of South Africa
Coovadia says the potential issues created by the introduction of the bill have not been addressed by the government.
The impact of this bill could mean that lending to low-income families will become much more expensive.— Cas Coovadia, Managing director - Banking Association of South Africa
As a result, Coovadia says some banks may choose not to service that particular market, rather than take on the added risk.
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This article first appeared on CapeTalk : Impact of new debt-relief bill will be 'severe'