A research project submitted to Wits Business School in partial fulfilment of the requirements for the degree of Master of Management in Finance & Investment February 2016 / South Africa has one of the highest income inequalities in the world. Although evidence suggests that access to secured credit has a positive impact on improving individuals’ earnings and reducing income inequality, secure credit has not been readily available to everyone in South Africa owing to past injustice of apartheid. This provided a business opportunity to credit providers who rolled out numerous unsecured lending financial products into the market. These are products historically target middle to low-income earners who don’t qualify for secured loans due to lack of collateral or good credit history. Small and Medium Enterprises (SMEs) also resort to these products when financial institutions don’t grant them secured loans because of their imbedded risky nature. Capitec Bank and African Bank are the biggest players in the South African unsecured lending market. During the 2008 worldwide economic and financial crisis, many people lost their jobs in South Africa. The impact of the crisis continued to be felt way after the modest recovery achieved globally and domestically. As a result, most individuals could no longer afford mortgages and basic needs and services because of their compromised economic situation. Henceforth majority of individuals resorted to alternative income means for their survival. For most individual, unsecured lending was viewed as the quickest way of securing additional income to supplement their minimal or no income. This resulted in exponential countrywide growth in unsecured loans. As unsecured lending attract a higher interest rate than secured loans, other formal banking institutions have been attracted to this market resulting in compounded overall growth of the loan book. This research paper aims to explore the unsecured lending landscape in South Africa with the intension of discovering how it has evolved over the years. It also explores whether unsecured lending has been a helping tool to the less fortunate through its impact on their subjective wellbeing. The findings of the research indicated that individuals with unsecured loans have a lower subjective view of their personal wellbeing when compared to those without unsecured loans. However, unsecured loans improve individuals’ personal wellbeing through its direct effect on individuals’ health, educational status and income. / GR2018

Thesis (MDF)--Stellenbosch University, 2015. / ENGLISH ABSTRACT: South Africa has experienced a significant growth in household unsecured credit extension, igniting concerns around the potential negative impact of household indebtedness on the stability of the banking system. With the use of correlation and ordinary least squares, the study attempts to prove a relationship between growth in unsecured lending (dependent variable) and consumption, lending rates and de-regulation (independent variables). Although there is a correlation between growth in unsecured lending and interest rates, this was not statistically significant. The study also found a strong relationship between unsecured lending and the other independent variables. Due to income and wealth inequality exacerbated by the past political dispensations as well as continued rise in the cost of living, unsecured lending provides a source of supplementary income that allow households to smooth their consumption expenditure over their life-cycle. On a longerterm basis, the country needs to gear itself to focus primarily on channelling resources towards productive investments. Quality education and skills as well as a culture of entrepreneurship and wealth creation should be cultivated at a young age.

Submitted in partial fulfilment of the requirements for degree Master of Management in Finance and Investments in Wits Business School of the University of the Witwatersrand / This research paper examines an economy with debt and discusses the mechanism through which a financial crisis may arise, taking into account the business cycle theories as advocated by amongst others; Karl Marx, Friederich Hayek, and John Keynes. It is found that there are various channels through which financial crises may arise. Secondly, this research paper investigates the mechanism through which bank credit propagates and prolongs the business cycle. The analysis of the data reveals that post the crisis, recoveries are slower in developed nations versus developing nations and that the deeper the recession, the longer it takes for a country to recover. Thirdly, this research paper determines the critical debt level at which economies will start to recover, following a period of economic fragility. Finally, recommendations which could contribute towards the mitigation of causes and/or effects of economic crisis are made. Key words: Bank Credit, Business Cycle / GR2018

Thesis (M.M. (Research))--University of the Witwatersrand, Faculty of Commerce, Law and Management, School of Governance, 2016. / Most economies today are calling upon their or rather are starting to rely on their Small and Medium business Enterprises to stimulate the economy and also help address issues of unemployment. However it is also believed that even though this maybe the case, most economies still don’t give SMEs enough funding. The underlying public assumption is that all that is needed for SMEs to thrive is access to funding, as such this study sought to investigate the role of financial access in the success of SMEs. The study had intended to use financial ratios as proxies for success, however, the record keeping of the SMEs or lack thereof impeded this intention, so the study measured the success of the enterprise as perceived by the owner. The study sampled SMEs from all for regions of Swaziland, and besides a descriptive analysis that were carried out to examine the utilization of credit by the SMEs. This study also used a statistical model known as the Logit model, to determine the effect that credit access had on the success of the SME and also assess the challenges/barriers that the SMEs faced when trying to access funding. The results of this study deviated from the underlying public assumption, as they showed that an SME owner that had access to funding had reduced odds of success, if anything the results showed that the success of an SME did not entirely depend on the availability of funding, and there were other potent factors that posed as barriers to financial access. / DM2016

M.Tech. (Operations Management) / This dissertation elaborates the reengineering of the personal loan application process in a South African bank operating in Africa. The research provides an understanding of the current situation and issues encountered with the current personal loan application process. It presents the framework for reengineering of the process and the methodology used in the research. The primary objective is to improve the existing process for personal loan credit applications in order to create improvements in the process. The research methodology used is quantitative analysis using statistical methods and qualitative research focusing on qualitative aspects with research reasoning being inductive allowing the researcher to draw conclusions from facts, assumptions and observations established through the data collection processes. The article offers a comprehensive understanding of the challenges faced in processing of loan applications. Businesses and institutes are built on good control systems which are needed to address the challenges faced in the processing of personal loan applications. The study contributes to customers service discourse in operations. The recommendation of the research is to reengineer the current personal loan process, taking into consideration the technology needed to improve the process, training of existing employees, implementation of a reward system and implementation of the redesigned process.

Thesis submitted in fulfillment of the requirements for the degree of Master of Management in Finance & Investment In the Faculty of Commerce and Law Management Wits Business School at the University of the Witwatersrand, 2015 / Risk based pricing has been a topic of discussion since the 2008 financial crisis as a result of the on-selling of packaged sub-prime assets. This paper will highlight the importance of correctly assessing risk within the framework of consumer credit provision. We will begin with a brief overview of the South African unsecured lending market, look into the definition of risk based pricing and the impact it has had in the market and conclude the paper by using a model by Robert Phillips to calculate the interest rate to be offered to a customer. / AC2016

Abstract not available. / Thesis (MBA)-University of Natal, Durban, 2001.

It has long been accepted that changes in monetary policy have real economic effects; however, the mechanism by which these policy changes are transmitted to the real economy has been the subject of much debate. Traditionally the transmission mechanism of monetary policy has consisted of various channels which include the money channel, the asset price channel and the exchange rate channel. Recent developments in economic theory have led to a relatively new channel of policy transmission, termed the credit channel. The credit channel consists of the bank lending channel as well as the balance sheet channel, and focuses on the demand for credit as the variable of interest. The credit channel is based on the notion that demanders and suppliers of credit face asymmetric information problems which create a gap between the cost of external funds and the cost of internally generated funds, referred to as the wedge. The aim here is to determine the size and lag length effects of changes in credit demand, by both firms as well as households, as a result of changes in interest rates. A secondary, but subordinate, aim is to test for a balance sheet channel of monetary policy transmission. A vector autoregressive (VAR) model is used in conjunction with causality tests, impulse response functions and variance decompositions to achieve the stated objectives. Results indicate that the interest rate elasticity of credit demand, for both firms and households, is interest inelastic and therefore the monetary policy authorities have a limited ability to influence credit demand in the short as well as medium term. In light of the second aim, only weak evidence of a balance sheet channel of policy transmission is found.

A voluminous literature attempts to explain the various channels of the monetary policy transmission mechanism through which central banks ultimately achieve price stability. However, most research focuses on interest rate pass-through and the demand for money phase, while there is limited research on the demand for credit. This study endeavours to contribute to the understanding of this neglected phase of monetary policy transmission by exploring the response of the real demand for bank credit by the private sector to changes in the real prime rate from 1990:1 to 2004:4 in South Africa. Firstly, the behaviour of the real prime rate in relation to the repo rate is explored using graphical analysis. The study observes that an increase in the repo rate causes an increase in the real prime rate, such that there is always a margin of three or four percentage points between the two rates. Secondly, using secondary data, the Johansen methodology is used to determine the relationship between the demand for bank credit and its determinants (GDP, inflation, real prime rate and real yield on government bonds). Two co-integrating relationships are found. The Gaussian errors from one co-integrating vector are used to model the Vector Error Correction Model, which provides the short-run dynamics and the long-run results, through the use of Eviews 5 software. The results of the study show that while all other variables are negatively related to the demand for bank credit in the long-run, GDP has a positive influence. In the short-run, yield on government bonds and inflation coefficients depict a positive association, while the coefficients of real prime rate and GDP are negative. The error correction coefficient is -0.32, which implies that a 32% adjustment to equilibrium happens in the demand for bank credit in a quarter and that the complete adjustment takes about three quarters to complete. Thirdly, the generalised impulse responses results indicate that the impact on the real prime rate affects the demand for bank credit from the first quarter. The study concludes that the real prime rate has a negative impact on the demand for credit both in the short-run and long-run.

This study investigates the contribution of bank credit extension to the private sector to inflation in South Africa, covering the period 1970:1-2006:4. The long-run impact of bank credit on inflation is investigated by means of the Johansen co integration model. The short-run ynamics of the inflation is subsequently modelled by means of the Vector Error Correction Model (VECM). Using the Johansen methodology, the study identifies two co integrating equations linking inflation and its eterminants. The results suggest that the long-run relationship between inflation and bank credit to the private sector is negative and statistically significant at 10% level. The determinants that are significant at 5% level are: money supply, real gross domestic product, the money market rate, rand/dollar exchange rate and imports. The results are consistent with previous findings. The speed of adjustment in response to deviation from the equilibrium path was found to be negative at 10.56% per quarter, which is consistent with findings by Ohnsorge and Oomes (2003) for Russia. Both the signs and the magnitude of the coefficients suggest that the co integrating vector describes a long-run inflation equation. The impulse response functions confirm the theoretical expectations except for the import prices. The most persistent and significant shocks observed are on impulse response functions of money supply and bank credit to the private sector. The variance decomposition results also suggest that inflation responds quicker to innovations from money supply and the money market rate. The overall results provide evidence that the surge in inflation is associated with an increase in money supply as well as the instability in exchange rate. The effects of exchange rate fluctuation on inflation are reflected through changes in import prices. Based on the results we conclude that an increase in bank credit during the period 1970:1-2006:4 had a negative mpact on inflation in South Africa.