Loans Express Blog Definitions
ACCREDITED LOAN LENDERS
When it comes to borrowing, nobody wants to be a client of a bogus institution or some individuals who do money laundering. Borrowers need to deal with accredited lenders who will give them a fair treatment and terms that are backed by good ethics, with this loan can be an enjoyable financial extension.
WHAT DOES ACCREDITATION ENTAIL?
In every area or sector of an economy, there are rules and statutory laws that were put by regulators as a way of ensuring minimum standards on operations. These standards are set as a way of protecting consumers of certain goods or services. Some companies might end up having too much emphasis on attaining large profits, forgetting the environment effect of their activities.
When a company or service provider is accredited, their services and operations would have gone through, screaming, testing and approval. When a relevant body approves their services as quality and good for the environment, the entity can now be said to be accredited.
WHO ARE ACCREDITED LOAN LENDERS?
In South Africa, there is one single board which has the sole mandate of giving licences and also revoking the permits of lenders when it is relevant to do so. The accredits all providers of loans in South Africa in line with the provisions of the National Credit Act of 2005.
Accredited lenders should be seen as entities, sole traders and other institutions that are registered with the National Credit Regulator at the same time holding an operating licence valid at that same period.
WHAT HAPPENS WHEN THE NCR LICENCE EXPIRES?
The NCR register the company as a lender, but it issues licences every year. If an institution’s licence expires, it also expires with its permission to provide loans or credit services. An entity cannot be called an accredited lender basing on the licence or accreditation that they had in a couple of years back.
The entity will have to maintain excellent standards, and when the licence expires, the body can reapply. The permission will only be granted when the credit provider still meets the minimum requirements. In South Africa, it is an offence to provide credit or lend money for commercial services without a licence from the National Credit Regulator.
HOW DO WE SEE ACCREDITED LENDERS?
Sometimes people tend to think that accredited entities are those that make too much noise with advertisements on media or those where people commonly borrow from. Although most of these would be having valid licences, a few of them do not have valid licences.
The National Credit Regulator makes it a mandate for all firms that are registered and having operating licences to display their licences on their premises, where members of the public can see the licences without making extra effort to do so. That is when you need an accredited lender to look for financial institutions that have valid NCR licences at their premises.
If services were just issued and left, there wouldn’t be anything that would be achieved at all. In institutions, businesses, and entities, there is a great need to perform administration as it allows the service provider to plan, control, and coordinate services. At some time, we need records to make trends, analysis, and forecasts that will allow us to capture the future with some level of preparedness.
WHAT ARE ADMINISTRATIVE FEES?
Administrative fees sometimes called service fees are charges levied on clients or customers for a reason raising funds for the administration of the services or products provided. In personal loans, administrative fees will be seen contributing to funds needed to pay the staff and financial system which records repayments, facilitate collection of repayments, draw repayment trends and other roles related to servicing the loans.
If you can make a payment and no one updates the account that you have paid, your balance will remain the same and you will always stay in debt.
HOW ARE ADMINISTRATIVE FEES PAID?
Administrative fees are paid every month; they are usually made to be part of the loan instalment that a client pays every month. The number of administration fees that a client pays will increase with the number of payments and the length of the repayment period.
Loans of same sizes with different repayment period will have varying amounts of administration costs, the fees will be the same every month, but because another will have more extended repayment periods, the costs will accumulate over time.
HOW TO REDUCE ADMINISTRATION FEES?
It needs the same effort to service a loan that is worth R100 000 and an investment that is worth R2 000, and this is the notion that made administration fees to be flat.
A company that offers personal loans is likely to have administration fees that are flat for all the loan amounts. Clients can reduce administration fees by taking large loans or combining multiple loans into a single loan with the use of consolidation loans.
There is a notable difference between cheaper loans and affordable loans, and these are some of the factors that lenders need to address before out-rolling their services into the market. Being able to know what your clients can afford will help in meeting their expectations and in that way, you would have addressed the issue of quality from affordability.
WHAT DOES AFFORDABLE MEANS?
Affordability is measured by the ability of the targeted make to purchase goods or services offered by the entity without making sacrifices or preceding other things. Products and services can be expensive but at the same time, be affordable to another market. On the other hand, products and services can be cheap but unaffordable for the targeted market.
WHAT IS AFFORDABLE LENDING?
Affordable lending is the provision of credit services or loans that have reasonable and fair costs associated with them. These costs will be administration costs, interest rates, initiation fees, and penalties that will be applied to when the clients fail to honour their contractual agreements.
There is a direct variation between affordable lending and low charges, and thus usually where interest rates, services fees, and initiation fees are low, the loans will be said to be accessible.
AFFORDABLE LENDING ILLUSTRATION
For a small loan amount of R10 000, 1% initiation fee, 1% services fees, interest rates of 15% per annum are affordable. For a loan of R5 000 000, an interest rate above 10% per annum will not be accessible. Looking at that, the larger loan is cheaper than, the smaller loan, but the amounts are too significant to let go as interest charges.
All loans and credit services go through an application process as the primary and initial stage of clients registering their intents. The application process is the foundation needed to have an engagement between a client and a service provider, and this process rests as a crucial stage of communication.
WHAT IS AN APPLICATION PROCESS?
An application process is a set of activities and engagements that prospective clients (applicants) register their intention of doing business with the service provider. An application process will cover activities that include filling of forms, submission of relevant documents as per requirements of the service provider, submission of completed forms to the service providers.
WHAT IS THE ROLE OF AN APPLICATION PROCESS?
An application process allows the service provider to recognize the prospective clients who have an interest in the services that will be on offer, paving the way for selection and assessment. It is through the application on which the service provider will be able to select and identify potential customers and or clients who will be meeting the minimum requirements as stated.
There are several ways in which lenders provide credit to borrowers. How repayment of the debt is structured usually is relies on how the borrower or debtor can manage the repayment structure.
In South Africa, balloon schemes are one of the most common ways of making loan repayments on loans that are secured with vehicles or other income generating assets.
WHAT IS A BALLOON SCHEME?
A balloon scheme is when a debtor obtains funding for an asset or property on credit and gets a repayment plan. That allows him/her to make smaller instalments for earlier periods. The repayment term is on condition that the borrower will clear the debt with a large amount on the last instalment. The large amount that will be repaid, at last, is usually called a lump sum.
The balloon scheme helps buyers who will be having less financial resources to make large purchases. They should have prospects of obtaining substantial income as the balloon payment date draws closer. The balloon scheme is a direct reverse of repayment with a deposit.
WHEN ARE BALLOON PAYMENTS NORMALLY DONE?
In South Africa and the world over, balloon payments are made when an individual want’s to purchase assets that are perceived to have an ability to generate more income. The prospective buyer will, at the same time need financial credit, meaning that they will have a few financial resources to commit to purchasing the asset.
The most common type of assets that are financed with balloon payments are motor vehicles (both commercial and personal), commercial buildings, machinery, plants, and other income generating assets.
WHY SHOULD I OPT FOR BALLOON PAYMENT SCHEMES?
A balloon payment scheme is a more critical deal when you have little wealth at the same time wanting to buy something. It may help with the inflow of economic and financial benefits in the future due to large repayments that will be made in the future. The current instalments and annuities will be very low to the extent that everyone with a regular income can manage to make payments. These will be slowly reducing the sizeable financial obligation at the end of the term.
The most crucial part for the assets financed under a balloon scheme can generate income to an extent. When more assets would have been acquired from the use of a single asset. This means the debtor will have an enhanced ability to make the balloon payment.
WHAT HAPPENS WHEN I CANNOT RAISE THE BALLOON AMOUNTS?
Balloon schemes are useful for improving your wealth without making a significant financial commitment. There can be a problem when there is inadequate planning or wrong timing by the borrower. When the asset which was obtained under the balloon scheme is used in a way that does yield financial benefits to the owner, there will be a higher probability of defaulting the loan.
In South Africa, most people fail to settle their balloon payment, and they turn to refinance programs for funds needed to pay the balloon. When the borrower fails to settle the balloon payment or secure refinance loans, the asset gets repossessed by the seller.
As you go for financial screening or assessment before obtaining credit, banking, and other business services, there are higher chances that you will be requested to provide a bank statement. This document is one of the essential items that can reveal the financial history of an individual.
WHAT IS A BANK STATEMENT?
A bank statement is a document that shows the financial transactions that a bank client has been carrying over a specified period. A bank statement will reveal all the funds that were received, withdrawn, and spent on other things along with the date and time on which the activities were occurring.
An untwisted bank statement is a true representative of all the activities that have affected the bank account in the specified period.
WHAT ARE THE COMPONENTS OF A BANK STATEMENT?
A bank statement will show an opening balance; this will be the number of funds that were available in the bank account at the beginning of a specific period. The bank statement will also have cash inflows and outflows. Inflows represent the funds that were flowing into the bank account, and these can be deposits and electronic transfers into the bank accounts. The discharges will be funds that were taken out of the bank account, and these usually involve bank charges, withdrawals, and electronic transfers going out.
In addition to these, the bank statement will also show the time on which the bank statement covers. On every transaction, date and time of occurrence will also need to be confirmed.
WHAT IS THE IMPORTANCE OF BANK STATEMENTS?
Before anyone requesting you for a bank statement, you will be carrying your normal activities through the bank, and these activities are a true reflection of your regular transactions.
Bank statements are used by service providers to measure the financial worth and abilities of the client. If the bank statement is not twisted, it will show the true reflection of the account holder.
HOW IS A BANK STATEMENT TWISTED?
Most people now know that bank statements are the primary requirements for many service providers, and they present a deceiving financial history on the bank account.
Most financial companies require prospective clients to present a three months’ stamped bank statement for the applicant to qualify for services. In three months, people will need to do something that requires a bank statement. Taking a personal loan will restrict the bank account for cleaner transactions. They must always be sure of a positive balance in their account.
When a company requests a bank statement, they will be given a deceiving bank statement that does not reflect the correct or routine activities of the account holder.
Imagine an economy without banks, individuals will keep their wealth at home, and the government will need to print vast sums of cash now and then as the money will not be circulating. More cash will be destroyed and more people will lose wealth to robberies and theft.
WHAT IS BANKING?
Banking is the business of accepting deposits from the public and creating credit from the same deposits. The banking usually involves many other financial activities like buying and selling foreign currency, managing cash, financial assists at the same time, providing funding for the same events.
Banking is a highly regulated business in many jurisdictions in all continents, and this is due to the high value of financial resources that banking involves and also the risk associated with handling such funds.
WHO DOES BANKING IN SOUTH AFRICA?
The banking sector in South Africa is highly managed through several laws and regulations. If an institution wants to perform banking services, it will need to be registered as a company in line with the provisions of the Companies Act of 2008.
The company will also need to be registered as a banking institution and be granted a licence from the Reserve Bank in line with the provisions of the Reserve Bank Act of 1989. When a bank wants to engage to provide credit services to the public. It will also need to be registered with the National Credit Regulator. Also must be granted a licence to do so in line with the provisions of the National Credit Act of 2005.
The bank will also be required to comply with the requirements of the Financial Intelligence Centre Act of 2009. With these, banking activities will be carried legally.
WHAT IS THE IMPORTANCE OF BANKING IN SOUTH AFRICA?
Banking is essential in distributing cash resources. Banks can avail cash where it is needed and take it from where there is access, allowing the economy to function properly. Banks also provide safe storage for wealth in South Africa. People can keep their money in the banks for years and be able to withdraw it when they need it without complications. Banking also funds several economic activities in the country, when the bank gets cash deposits, it will be able to lend it to those who need funds.
In addition to that, banking also allows the government to collect taxes from taxpayers. Banks are the major players in collecting and withholding taxes and availing it to the government so that public services are funded.
Nobody is desired to be in a situation or condition of being blacklisted at the same time, and very few parties will like to associate with those who are said to be blacklisted. Where blacklisting happens, it will also be an act of alarming the public of something that is not good.
WHAT DOES BLACKLISTING MEANS?
Blacklisting is the act of a responsible authority or organisation compiling a list of people and or organisations who are considered to be wrong, un-trustable, or banned from accessing certain services or entering certain places.
Usually, a party that gets blacklisted would have made some gross violation of necessary procedures or laws that would apply to that area.
WHAT ARE BLACKLISTED BORROWERS?
Credit bureaus make compilations for all loans and related credit services when applicants acquire these services. Their compilations are mainly about loan repayment. Clients will get blacklisted when they default loans and fail to make repayments to the extent that their credit scores fall below the minimum acceptable level by the credit bureau. When the client’s credit scores fall below the minimum level, credit bureaus will put on a blacklist. After alerting the public and stakeholders that such a person cannot be trusted for lending.
A blacklisted person in South Africa will face difficulties in accessing loans, and they will only have easy access to secured loans.
As people, we come across some situations that bring financial tension, and this is when our financial resources cannot seem to take us through. In cases like these, we turn to external means of raising funds, and borrowing is one of the significant alternatives that we have.
WHAT IS A BORROWER?
A borrower is a person or entity who is given a financial credit by a lender. Borrowing means getting resources and use them, and the funds will be returned in line with the agreements that the borrower made with the lender. The loan will allow the borrower to use funds that they have not yet earned. People can borrow from other people, from employers or commercial lenders. When borrowing is engaged through a commercial lender, the funds will be returned with interest or additional charges that will be a premium to the lender.
Commercial activities that involve borrowing and lending in South Africa should only take place through registered entities.
WHAT IS THE OBLIGATION OF A BORROWER?
At all times, the borrower should make repayments of funds that were extended to them together with interest rates and other charges that they may have agreed with the lender. Borrowing is accepting funds with a promise that you will return them in an agreed time and amount in full.
WHAT IS THE DIFFERENCE BETWEEN A BORROWER AND A DEBTOR?
A borrower is a debtor, but a debtor cannot be called a borrower. A borrower falls under the category of debtors, and these are people and entities that will be owed something. A borrower is expected to return the exact things that they borrowed. When you borrow the money you return the payment, when you borrow food, you return to food, etc.
A debtor will be anyone who owes something, whether money, assets, or service delivery. A person can also be a debtor without being involved with anything.
IS IT GOOD TO BE A BORROWER?
Borrowing can be good or bad depending on situations and circumstances that the borrower finds themselves before lending. Borrowing responsibly is a good practice; it entails when one is faced with a financial shortage to cover the basic needs. The person who would be hiring should also have the financial means of returning the money in the time frame and amounts that will be specified by the lender.
Borrowing is terrible when it is done irresponsibly. If someone borrows money to finance leisure activities, the person who does lousy lending will also have no financial means of returning the funds.
BORROWING AND LENDING
We live in communities together as a means of helping each other. Our communities have people of various backgrounds, some will have enough, and some might be struggling to meet daily basic needs.
Usually, the community structure itself in a way that those who have excess or resources tend to extend these resources to those who fail to meet their basic needs. When this exercise is done with people returning the funds, it creates a system of borrowing and lending.
WHAT IS BORROWING AND LENDING?
Borrowing is the act of obtaining credit or resources with a promise of returning the same type of item that was borrowed at a specified period and quantity.
Borrowing can be done, and the items borrowed will be returned with interest or at a discount. While lending is the practice of extending funds or resources to people or organisations with a promise that they will return the resources or funds at an agreed date and quantity.
Lending can be done on a personal level. The lender might need to help the person who falls short on their credit, and here, there will be no interest involved. When lending is done on a commercial level, it will include the use of interest rates and charges that will accrue as a premium to the lender.
THE LINK BORROWING AND LENDING
The borrower seeks resources or funds from the lender while the lender will be the resourceful party who will provide a service or help to the borrower. Where there is no lending, there will be no borrowing and so vice versa. The acts of borrowing and lending both critical address issues of resource allocation in any society.
The lender will be looking to put their resources into use at the same time the borrower will be looking for resources to get activity moving. Both parties will be having a need and demand for the existence of the other, and so when they are joined, there will be an effective use of resources.
WHERE DOES BORROWING AND LENDING HAPPEN IN SOUTH AFRICA?
Borrowing and lending happen daily in South Africa at both social and commercial level. At a social level, friends, relatives, employers and other groups of people provide funds and resources to those who will be in need so that they will return later when they are in a better condition.
Borrowing and lending on a commercial level usually involve banking institutions, companies, and other financial institutions providing funds that will be returned with interest and additional costs by the borrower.
There are sometimes when people do good and deserve to be rewarded, their commitment, persistence, and honesty can result in a significant financial upliftment from a service provider or employer. Budget boosters are one of the commonly used ways of rewarding clients, employees, or partners of their honest and useful presence.
WHAT ARE BUDGET BOOSTERS?
Budget boosters are financial extensions that are meant to help an individual have an increased amount of disposable income. A big prize or reward for the activities is that they have rendered it well. The budget boosters usually come with terms and conditions that the recipient will have to obey, and these conditions are legally binding and enforceable by the practices of contract laws.
A budget booster can come as a new loan to a loan client. The new additional loan will have to be free of any charges. Also, it will need to be repaid. A recipient of a budget booster usually does not have to leave for a certain period until the provider sees it fit to let them go.
WHAT IS THE USE OF BUDGET BOOSTERS?
Budget boosters serve various purposes, depending on where they are being used. When the budget boosters are provided to a client, it will be a price or motivational tool. It will give the client more reasons for maintaining continuous engagement with the service provider.
When budget booster providers are employers, they will function as motivational tools. They will help in boosting the financial muscles of employees which have a significant impact on morale and worker output. Typically, when low-income employees receive economic benefits, they tend to give high-quality output.
WHO USES BUDGET BOOSTERS IN SOUTH AFRICA?
There is a large number of entities that apply the use of budget booster on their activities as a way of yielding more quality or quantity out of their clients, workers, and partners. In the provision or credit services, Bayport Finance is one of the traditional financial institutions that employ the use of budget boosters on its loans.
The Bayport Finance Budget boosters are new loans that come with no interests and or charges to the client. Also, if they perform well on early repayments, they are repayable together with the first loan. Budget boosters have gone a long way in increasing the value of Bayport finance personal loans to the extent that the company has realised massive growth in the past three years.
It rewards a lot to maintain a relationship rather than making short stays at various places, having to re-build new relationships and getting used to new environments now and then. There is little that we achieve without making commitments and persistence, and these should work together with the pillars of continuous engagement.
WHAT IS CONTINUOUS ENGAGEMENT?
Continuous engagement is the state of being in a long-term relationship with a client, service provider, employee, or individual. Ongoing commitment entails that two parties will take their relationship through various phases, periods, and experiences, but to do so, some elements should work as pillars continuous engagement.
WHAT ARE THE PILLARS OF CONTINUOUS ENGAGEMENT?
The two parties that will be involved in a continuous engagement should have a mutual understanding that is bound by persistence, trust, honesty, and the need for each other.
When one of these elements gets broken, there will be a problem in maintaining a continuous engagement, as one party might feel aggrieved or purposeless to keep the relationship. Honesty is what breeds trust on the parties involved as it addresses the decency that exists between each other.
These two must also be backed by the need of what the parties do to each other, and that need should breed persistence. When there are honesty and trust without obligation, there will not be any continuous engagement that will be achieved.
WHAT IS THE IMPORTANCE OF CONTINUOUS ENGAGEMENT?
Continuous engagements allow service providers, employers, and other organisations to take advantage of working relationships. They will be having to gain more value and avoid the costs and time losses that are involved with new engagements.
A new client will need to be taken through the application, assessment, and other phases before he will be able to know and grasp the flows of the service provider. An employer who experiences a high labor turnover will have problems in having experienced staff, which compromises the quality of work provided.
New engagements will come with costs that are related to training, mistakes errors, time losses, and these can accrue to a significant opportunity cost.
Contracts represent essential elements of business deals, and this is why almost all entities make use of these in all critical and high valued agreements.
The contractual agreements are what bind the two parties which would be in a business relationship on what the parties would be expected to do.
WHAT ARE CONTRACTUAL AGREEMENTS?
Contractual agreements are the terms and conditions of engagement. Parties that are involved in a contract have agreed to be bound and during the time of the meeting.
The contractual terms will not be regarded as a contractual agreement when one or some offerees that are to be involved in the required engagement have not given consent to the terms. Contractual agreements can be written or verbal, drawing contractual obligations for each party that will be involved.
When a party fails to honour the contractual agreement, they are said to have breached the contract. The grieved party will have a right to take legal recourse against the party who breaches a contract.
LEGALITY OF CONTRACTUAL AGREEMENTS
Contractual agreements are considered legal and enforceable to the extent of the legality of the contents.
When the contractual agreements allow one party to engage in illegal business, contractual agreements will be declared void. From initiation, which means if any of the parties are aggrieved, the law will not entertain the complaints. All contracts that have legal contents but signed with parties that are minors and mentally disturbed people will also be regarded as void from initiation.
Contractual agreements that are reached with people under duress and undue influence will also be regarded as a void to the extent of the force exerted on the grieved party.
IMPORTANCES OF CONTRACTUAL AGREEMENTS
Contractual agreements cement the relationship and bind parties to perform as agreed on the contractual agreements making sure that parties respect the rights and promises they create in business settings. Due to the enforcement of contractual agreements by all jurisdictions, the parties will make efforts to honor the contractual arrangements as a way of avoiding loss of wealth from litigation.
Contractual agreements are also crucial in defining the duties and roles of each party, making sure that they will always refer to the parameters when confusion arises upon the responsibilities of each party.
WHO USES CONTRACTUAL AGREEMENTS?
Any party that engages in a contract should make use of contractual agreements.
That is, there will be a need to know what you are expected. Contracts are commonly used between employers and employees, between business partners, clients and service providers and other areas where contracts will be suitable.
Parties that do not breach contractual agreements avoid losing wealth as the aggrieved parties can successfully sue for financial damages through the courts of law.
Companies play a significant role in the building of any economy, and they provide goods and services that address the primary needs of the citizens. In Addition to that, companies are providing much-needed employment for the citizens. It’s making sure that there is income for the people to afford goods and services offered.
Corporate finance addresses the financial wellness of companies making sure that there is value addition — each activity that a company undertakes, which will be expected to result in a financial gain.
WHAT IS CORPORATE FINANCE?
Corporate finance is an umbrella term that covers the funding, revenue creation, and management of company financial resources. The main components funding of corporate finance will be loans, shares, debentures, convertible loan stocks, and company financial reserves that are obtained from retained profits.
The revenue element of corporate finance will deal with the creation of sales, receipts, and takings. Activity that the company undertakes is also known as corporate finance.
WHAT IS THE IMPORTANCE OF CORPORATE FINANCE?
Corporate finance is vital for addressing the funding needs of the company, and it is the company finance manages who will need to source, evaluate and apply for funding on behalf of the company, making sure that its projects and other activities are well funded.
The providers of corporate finance funding tools like shares, debentures, and loan stocks also gain higher value from corporate finance practices as it makes sure that these people are rewarded accordingly for their investments. For every corporate finance activity, there is a valuable addition that will result in financial gain to the shareholders or other investors in a company.
Nobody wants to move around, making unrestrained expenditures on things that they are not sure of their values, all the spending should be a strike between value and price. The issue of cost-effectiveness comes when a party wants to reduce costs to minimum possible levels without compromising the value of the item or service to be obtained.
WHAT DOES BEING COST-EFFECTIVE MEANS?
They are being cost-effective means having the ability to reduce costs to the minimum possible level without reaching a compromise on the quality of service or product to be obtained. A person, machine, or asset can be said to be cost effective when it can meet the required standards in the time needed within the lowest possible time.
Cost-effectiveness is a term that is usually employed in the business environment where finance managers and cost accountants are expected to engage practices that will result in the reduction of total costs, hence maximizing profits, getting the best use of available resources.
HOW DOES ONE BECOME COST EFFECTIVE?
The fathers of scientific management and early theorists of management have identified several factors that can be applied to reduce costs. These might also apply to individuals. Movements that adds no value to a process are supposed to be cut as these results in prices, but the organisation or person will gain nothing from them.
Reducing mistakes and errors also allows one to become cost-effective. We will be in need to use more resources to cover the mistakes and errors that were once paid for. In addition to these, costs can also be reduced by reducing time wastages as there is always an expense that will be associated with unproductive sessions.
The modern day living is more enjoyable to the people who have credited in their lives, those who have managed to gain something over their past. Thus, your wealth will be measured by the amount of credit that you have.
WHAT IS CREDIT?
A credit is a positive balance of anything, be it funds or any other resources that we might need as individuals in our lives. Having a loan will mean that an individual owns something in that particular area that will be concerned.
When something runs out of credit, it reaches point “0”, and this will be a neutral point from which if one goes below that point, they go to the negative side of it. When you reach the negative side of credit, you will be in a debit zone, meaning that you will be indebted or owing something. All the things you will be using will not be yours.
WHAT IS A FINANCIAL CREDIT?
Financial credits are funds, cash, and real bank accounts balance that belong to a party, something which they can use without having to make any consultations.
Financial credits are the most common type of loans as they measure the worth and liquidity of the referred party. When a party runs out of credit, they become insolvent, and when they have adverse credit, they will be said to be indebted.
Both the indebted and the insolvent will not have the ability to make purchases as they will be regarded as having no financial credit. When a party is extended with commercial lending, they would have been given funds so that they can be able to make expenditures.
Most companies and institutions will put clients through a credit assessment process before they can engage the client in their daily business. This is part of the risk management procedures as the company, or other institutions will be looking to avoid dealing with parties that have insufficient resources to serve the intended purpose.
WHAT IS CREDIT ASSESSMENT?
Credit assessment is the procedures, processes, terms, and conditions that are put by an organisation as a way of screening people or organisations to remain with parties of particular financial abilities.
Credit assessment is usually done when the parties that are being assessed might need to be extended with financial credit or will at some point of engagement be a debtor to the entity which will be doing credit assessment. Credit assessment will allow the assessor to remain with the parties that are deemed fit to perform certain transactions when they have a willingness to do so.
WHAT IS THE IMPORTANCE OF CREDIT ASSESSMENT?
Credit assessment is an essential part of mitigating default risk when dealing with the assessed party. The notion is that a party that passes a credit assessment will be in the category of clients that will be having an ability to align with the required financial obligations.
Typically, default happens with parties that have no financial muscle to perform the required transactions and so achieving a credit assessment will mean that vast elements of default would have been rooted out from the clients.
Credit bureaus play an important role in credit assessment of individuals who are the primary market of many financial institutions and companies that provide credit services in South Africa and the world over. Their role is to service a cornerstone on which most entities will base their client assessment.
WHAT ARE CREDIT BUREAUS?
Credit bureaus are financial institutions that gather, coordinate, and present information about an individual’s financial history (credit profile) in a credit report. The credit bureaus are independent companies from the lenders from which they obtain information about the borrower or debtor.
A single credit bureau obtains information from multitudes of lenders, banks, and other providers of credit services. Some institutions might be working with several credit bureaus on which they submit the report of the lender.
A credit bureau will be required by its clients and the law to provide credit reports. Credit scores are independent and are a true reflection of the borrower’s credit profile.
HOW DO CREDIT BUREAUS WORK?
Companies, banks, and other institutions that provide financial credit services register with credit bureaus. Agreements that they will submit all information that relates to credit services that they will be offering to clients.
A company can choose to work with one, many or all of the credit bureaus. It all depends on its ability to submit information to those institutions. The credit bureaus will compile reports of credit profiles of the people who have been clients basing on their history with the credit services providers.
The credit bureaus work with credit scores on which they will rank debtors and borrowers on a numerical scale that usually does not exceed 1000. The logarithmic scale will determine whether the client had good credit or a bad credit history.
WHICH CREDIT BUREAUS ARE IN SOUTH AFRICA?
In South Africa, there are a vast number of credit bureaus that provide credit rating services. All of the credit bureaus are bound by the National Credit Act of 2005, to provide at least one credit report for free to any member of the public who requests to do so.
Most financial institutions commonly use four major credit bureaus, and these include XDS, Experian, Compu-Scan and TransUnion. These are notorious for providing quality information that is reliable and free of errors.
Sometimes we all need to make transactions before earning, that is the need to purchase or pay for our needs when they arise before our dues are received. In such situations, we will need to take advantage of the available credit facilities and be able to meet our needs.
WHAT ARE CREDIT FACILITIES?
Credit facilities are programs, products, and services that allow individuals or entities to perform financial transactions before earning or receiving funds.
This means that the individuals will borrow funds from a credit service provider. The credit service provider is the one who extends credit facilities to the community. Credit facilities come in the form of loans, debentures, credit cards, student bursaries, and other financial advances. The norm with credit facilities is that most of them are issued with costs that will give a premium or reward to the provider.
The most common costs involved with these are interest charges, services fees, initiation fees, and penalties when the client defaults.
WHO ISSUE CREDIT FACILITIES IN SOUTH AFRICA?
All providers of credit facilities in South Africa are overseen by the National Credit Regulator and its branches in line with the provisions made in the National Credit Act of 2005. The providers of credit facilities should be companies, sole traders, and institutions who are registered at the same time holding a valid licence from the National Credit Regulator.
The most common providers of credit facilities in the country are banking institutions, and these include ABSA, Capitec, Nedbank, and Standard Bank. There are also other conventional financial institutions that provide credit facilities, and these include WesBank, Bayport and Old Mutual.
Think about a scenario where you have to perform transactions, but your funds are insufficient, that moment where preceding such a transaction will result in a significant opportunity cost. In such situations, we will all need to look for credit finance to get exercise or activity going.
WHAT IS CREDIT FINANCE?
Credit finances are the funds or money that is acquired through borrowing to pay for a project, exercise, or activity.
Credit finance comes in the form of loans, debentures, credit cards, convertible loan stocks, and money market instruments. In a corporate set-up, all the funds that do not belong to the shareholders of the entity will be credit finance. The company will have contractual, legal, and constructive obligations of making relevant payments to the holders of credit finance.
For companies that have good credit records and profiles, credit finance is the best alternative as it satisfies the financial needs in an instant.
WHAT IS THE ADVANTAGE OF CREDIT FINANCE?
On a business set-up, credit finance comes with fixed costs, that is despite the level of profit that an entity makes the credit facility will require the same amount of fees. This means if a business makes profits that are higher than the costs of the credit facility, the benefits will be maximized.
This has also been proven by the portfolio theory of finance where there is an optimum level of debt capital that a company can use to make profits. However, credit finance will also increase losses at times when the business will not be profitable.
In every activity that human beings undertake, they are governed by statutory rules that prevent them from going off-route, making sure that only good things are carried for the benefit of everyone.
The area of lending and borrowing also has laws that govern the activities of both lenders.
WHAT ARE CREDIT LAWS?
Credit laws are statutory provisions that were made to govern the provision of credit services in a given jurisdiction. The credit that is governed by credit laws usually is those that take place between individuals and institutions, together with those that take place between the institutions themselves.
There are no credit laws that govern lending activities that are between humans; the civil laws cover those that are not commercialized. Credit laws define the difference between legal and illegal lending before providing for the maximum acceptable levels of charges that can be levied on borrowers.
In South Africa, the National Credit Act (NCA) is the supreme credit law which is sometimes supported by the Financial Intelligence Centre Act (FICA)
WHAT IS THE SIGNIFICANCE OF CREDIT LAWS?
Credit laws mainly protect individual borrowers who do not have the bargaining power to shield themselves from predatory lending practices or exploitation by lenders. In most cases, borrowers will have little or no alternatives to funding, and so they are unduly influenced to take expensive credit.
The credit laws also restrict lenders from financing criminal activities and other money laundering activities, preventing the community from drug abuse, kidnapping, and other money laundering activities.
Credit Life Insurance
At some point in our lifetime, we engage ourselves with banks, employers, and other financial institutions that provide us with long term credit facilities so that we can make investments ahead of earning money. As we engage ourselves, we do not have control of what will happen in our lives; that is why we need to have credit life insurance.
WHAT IS CREDIT LIFE INSURANCE?
Sometimes called death cover, credit life insurance is an insurance policy that is meant to repay the debts of the principal borrower when he or she passes out.
The credit life insurance cover will cover the remaining balances on loans, credit cards, and other debts that would have been insured so that the beneficiaries of the deceased’s estate will not lose anything. Credit life insurance are sometimes issued as a comprehensive package with the credit services to prevent mishaps of defaults when the client or debtor passes out.
HOW IS CREDIT LIFE INSURANCE PAID FOR?
Credit life assurance functions are like all other types of insurances. The clients will be required to make instalments throughout the loan repayment period.
Usually, a loan client will not see the impact of the credit life insurance premiums unless the providers tell them. Due to the low occurrence of death amongst borrowers and debtors during the repayment period, the number of funds that will be contributed towards the premiums will be very low.
The premiums are typically paid as part of the loan repayment instalments every month.
WHAT DETERMINES THE COST OF CREDIT LIFE INSURANCE COVER?
On all insurances, some factors will be used in calculating the probability of an event occurring. On credit life insurance, insurance companies will charge more to clients who have chronic diseases, elderly clients, and those who work or stay in environments that are considered to be risky.
Your credit life insurance premiums will be lower when you are youthful with no chronic diseases.
IS IT WORTH IT TO TAKE CREDIT LIFE INSURANCE?
Life is enjoyable to the extent that when you are healthy and fit sometimes, you think you will live forever, but death is one of the unfortunate events that can occur to anyone despite your age and state of health.
The most crucial role played by credit life insurance is to allow your dependents and those who remain to have peace, and this is done through ensuring your obligations.
Credit Life Premium
Death is one of the unfortunate events that can happen in our lifetime, and no human can escape it, all that we can do is to reduce the financial impact of death on our family, loved ones and beneficiaries.
As we ensure our debts against these mishaps, we create financial obligations that providers will need to accumulate funds in preparation for these unfortunate occurrences.
WHAT ARE CREDIT LIFE PREMIUMS?
Credit life premiums are recurring payments that a debt insurance client pays to the insurance company or insurance service provider. These payments usually come in the form of monthly instalments, weekly instalments, or annuity depending on the terms of the insurance. In most scenarios, credit life insurance premiums are paid as part of the loan instalment or debt that would be under service.
The premiums frequently come in very small instalments that are credit life insurance.It is being provided by the same company on which the client owes, and the amounts might be unnoticeable unless told.
WHAT IS THE DIFFERENCE BETWEEN CREDIT LIFE PREMIUMS AND INSTALLMENTS?
Credit life premiums represent recurring payments that are made to ensure a debt in the event of the death of the principal borrower. Periodic payments are made to service or pay off a debt.
Instalments can also be any form of payment that is done on a periodical basis, and the amount might not be for servicing debt. All kinds of premiums are meant to maintain insurance, and premiums can be encompassed under the umbrella of instalments.
Both premiums and instalments are typically paid every month and deducted directly from the bank account of the client.
Credit Management System
Companies need to process enormous quantities of data; the data will need to be in a system where users of such information can easily access it at the same time not exposing clients’ data to cyber threats.
Systems will allow the institutions to process large volumes of information which could require high numbers of employees, paperwork, and funding in an instant. In providing credit, credit providers make use of credit management systems for the daily management of their clients.
WHAT ARE CREDIT MANAGEMENT SYSTEMS?
Credit management systems are computer software that accurately performs the recording, analysis, presentation, and accounting of credit services. The majority of credit management systems currently used by financial institutions are cloud-based, and they are linked to several other methods that a company would be using.
The credit management systems providers will be specialist information and technology companies. They are combining their staff with people with broad financial knowledge to come up with a powerful and efficient system. The credit management system works in the same way with accounting systems, and sometimes they will allow the users to perform accounting activities.
HOW DO CREDIT MANAGEMENT SYSTEMS WORK?
The credit management system will need the users to register with the providers. Having access to the systems, and when the users are now clients, they will need to open accounts on the system.
When opening an account or creating the company profile, credit management systems will need the company to make settings that define the internal controls of the company involved. The system will link the account with relevant tax laws, credit laws, and accounting standards that will be relevant to the type of credit service provided.
The staff of the company will need to upload all information to the system as operations take place. Interest rates, due dates for loans and applicable penalties will need to be entered to allow the system to automate charges on clients.
WHO ARE THE PROVIDERS OF CREDIT MANAGEMENT SYSTEMS?
Credit management systems have no boundaries. Like any other system, designers of credit management systems can make sales and have clients from places that they don’t know. In South Africa, companies that work as credit bureaus tend to be the most active credit system management companies.
These companies include Carditec, Acpas, Calidad, and Delfin, and these are common with large loan providers in South Africa. However, others operate in an international arena, and these include Auto cloud, SAP ERP, and Escrow.
Nobody knows when the next accident or emergency is going to occur, and that makes it difficult for individuals to prepare for these events and keep funds that will help them to escape such scenarios.
Credit providers allow people and institutions to meet their needs before earning or receiving their funds, and these have proved to be the best alternatives for funding unforeseen financial gaps.
WHAT ARE CREDIT PROVISIONS?
Credit provisions are credit facilities that are extended to individuals or companies to enable them to make expenditures before earning or receiving money.
All credit provisions are repayable. When one is provided with the credit, they should make efforts to repay the credit allocated in full. Credit provisions can come in the form of funds, cash, loans or allowance of goods and or services without making a payment. A person who obtains credit is known as a debtor to the credit provider until the full repayment of the loan.
ARE CREDIT PROVISIONS PAID FOR?
Whether the credit facilities are paid for or not, it wholly rests with the preferences of the credit provider. Most credit providers that provide loans, credit cards, and sell products on credit will require their customers and clients to pay for the credit facility through interest rates, service fees, initiation fees and penalties when the client defaults.
On the other hand, credit provided by the government and non-government organisations frequently come with no interests and charges, these institutions usually offer credit services for the benefit of the citizens.
WHO SHOULD PROVIDE CREDIT IN SOUTH AFRICA?
Only institutions and sole traders that are registered and holding valid licences from the National Credit Regulator(NCR) can legally provide commercialised credit services.
These institutions will also be required to work in line with FICA and NCA provisions. There should be no conflict between their services and the South African credit laws.
Generally, banks are the primary providers of credit services, and these include Nedbank, FNB, Standard Bank, Absa, and Capitec Bank. South Africa is also home to a large number of financial institutions that provide credit, and these include Bayport Finance, Old Mutual and Fundi.
Lenders and other financial institutions need to rank clients in order of their abilities to know the suitable type and amount of credit they can see extend without running into a huge financial risk that is not backed by relevant premiums. All lenders are risk-averse, and they will perform credit rating to their clients to avoid all elements of default before disbursing loans.
WHAT IS CREDIT RATING
Credit rating is the drawing of credit profiles of clients and assigning of credit scores, which will be used to rank these clients with their credit profiles. Credit rating will allow a credit service provider to see the clients who have lower and higher credit risk with the use of credit scores. Generally, a small ranked client will have higher credit risk, and that means there will be greater chances of default from such a client.
On the other hand, a higher ranked client will have low credit risk, meaning there will be smaller chances of default from such a client.
WHO DOES CREDIT RATING MEAN?
Credit rating a simple procedure that can be performed by any organisation. Having sufficient and relevant information is vital.
An institution will require historical information, banking, and borrowing history of a client can perform a positive credit rating. The more considerable the amount of information available about the client, the better the credit rating procedure. Credit bureaus are the most common players in performing credit ratings, and these institutions can gather more information about clients before compiling credit profiles.
Banks and other financial institutions can also perform internal credit rating for their existing clients whom they deem to know better than credit bureaus.
WHAT IS THE IMPORTANCE OF CREDIT RATING?
Entities are in the provision of credit for commercial purposes, that is they are lending to make profits. There is a need to increase revenue and simultaneously reduce costs relating to an activity. Credit risk is one of the major elements of costs or losses relating to the provision of lending. This means when the lenders can identify the borrowers with higher credit risk, they will be able to avoid these costs and losses.
Whenever a loan or credit service has defaulted, there is an amount of loss that is incurred by the credit service provider. The credit service provider keeps incurring losses, and ultimately, they will run out of financial resources.
In statistics, they say every type of measurement should have a scale that will allow users of such a measure to be able to rank and clearly define the differences in points that would have been achieved by various parties or objects.
These measurement scales are also applied in the financial world whenever credit rating is performed on borrowers or potential debtors.
WHAT ARE CREDIT SCORES?
Credit scores are the numerical representation of a person or entities credit profiles that are meant to be used in rating these following their creditworthiness. Similar to the pegging of points in sports and other areas, credit scores will increase when the client performs well in repaying loans and other credit facilities.
On the other hand, credit scores will fall when the client performs poorly or default loans and other credit facilities. Usually, a credit scale will begin from 0 to 1000 for most institutions, and when clients obtain a credit service, they will be pegged on the half-mark.
When a client outperforms the requirements of the loan, managing to clear repayments before the due dates, their credit scores will increase towards the maximum points on the scale. The scores will reduce the minimum level when there is a default.
HOW TO INCREASE CREDIT SCORES?
Making a positive shift in credit scores might be hard when a client has previously been through default, as most lenders will shy away from providing credit. The best way of improving credit scores is by keeping your dues updated or paying your dues some days before the due date.
Credit scores also increase significantly when clients manage to repay a large loan ahead of time, and most people would apply the use of debt consolidation loans to give a high impact on credit scores.
When a problem or a shortage arises, there is a need to involved parties to come up with a lasting solution, one that will allow the beneficiaries to escape the consequences of such a shortage safely.
This goes the same with financial strains, and there is a need to seek credit solutions when your financial resources do not seem to match with the required resources.
WHAT ARE CREDIT SOLUTIONS?
Credit solutions are externally sourced financial alternatives that come with a fixed obligation of repayment until the liability raised by the credit solution is fully covered.
Credit solutions come in the form of loans, money market instruments, credit cards, overdraft facilities, and services or goods that are obtained with a promise of making payments in the future. Credit solutions come with an obligation or repaying the value of credit that was obtained in full. The amount of credit solutions is derived from the financial worth of the service, which is generally comprised of the principal, interest charges, and service fees.
Where the credit solutions were done on goods or services, the cash prices of these will represent the principal value and have to be repaid in full within the stipulated period.
WHAT IS THE IMPORTANCE OF CREDIT SOLUTIONS?
As a business or an individual, you cannot manage to have funds at all the times that you need to make payments or expenditures. There are some times when we cannot forgo an activity at the same time we won’t be having sufficient financial resources for these.
Credit solutions are what will allow us to take such expenditures or make such payments ahead of earning money, thus allowing a smooth flow of activities.
WHO OFFER CREDIT SOLUTIONS IN SOUTH AFRICA?
Credit solutions can be offered by anyone when they are not commercialised. On a commercial basis, South African law does not allow everyone to issue credit solutions.
Providers of commercial credit solutions will need to be registered with the National Credit Regulator (NCR) and work in line with the provisions of the National Credit Act (NCA) and the Financial Intelligence Centre Act (FICA). The providers of credit solutions will, at all times, need to hold valid licences from the National Credit Regulator.
The most common providers of credit solutions are banking institutions, and these include FNB, CAPITEC, ABSA, NEDBANK, and The Standard Bank. Credit solutions can also be obtained from other registered financial institutions that include Wesbank, Bayport Finance, and Old Mutual.
Everything is essential, but in some activities, there are one or more factors that can be agreed to have more importance than the others.
Imagine the role played by a cornerstone or brick on giving strength to a building structure, it does not render the dagga and other bricks useless, but its role becomes outstanding than that of others. Critical factors are things that need to be addressed for the success of any activity or programmes, and so when critical factors are addressed everything else will move flawlessly.
WHAT ARE THE CRITICAL FACTORS?
Critical factors are the most important components or elements of activity; the existence of essential factors does not mean that an event will be a success, but their absence will fail in everything.
The critical factors are the primary needs on every activity, to put this in simple terms when a company is poorly funded it will not be able to run correctly, but it does not necessarily mean if the company is funded it will be successful.
ILLUSTRATING CRITICAL FACTORS?
A typical automobile runs with an engine, battery, wheels, and gasoline or any fuel it will be using.
These are critical factors that are needed to ensure that the car runs; they perform a primary function of initiating movements on the vehicle. If you have to take out one of these critical elements, which are fuel, engine, battery, and wheels from a car, you will not be able to get the car into motion.
On the other hand, the existence of wheels, batteries, engines, and fuel on a car does not mean that the vehicle will successfully run. A vehicle will need other things like oils, breaks, a steering wheel, and even a gearbox.
Death is the one, and the only thing that humans have failed escape, it might not happen now or tomorrow, but sometimes we will all leave this world.
The tricky thing about death is that no one knows the day and time to prepare for it. Insurance companies tried to shield your family and loved ones from being negatively affected by when you pass on through the provision of death benefit plans.
WHAT IS A DEATH BENEFIT?
A death benefit is a form of insurance that will cover your obligations, beneficiaries, and family when you pass on.
Like all other insurance, the death benefit has premiums that are made during your life. A death benefit plan works differently with a funeral assurance as the funeral assurance mainly covers the expenses that are related to the burial of the principal insurance holder.
A death benefit plan can be covered within a funeral assurance, that is when the bereaved family is covered with finances that will allow them to cover other expenses.
DEATH BENEFIT ON CREDIT SERVICES?
There is a difference between a standard death benefit plan and a death benefit on credit services. A death benefit on a loan or credit facility is an insurance that is used to cover the debt balances which may exist when the principal borrower passes on.
That is, the money is not given to any of the survivors or family members, it will be used to cover the outstanding balances of loans and other credit services. This will help to shield the survivors and deceased estate’s beneficiaries from losing assets on settling these debts.
Similar to many other things, debts need to be managed to prevent the debtor and providers of these debts from being negatively affected.
If you move around borrowing and buying stuff on credit without making calculations, you are likely going to find yourself owning nothing when your belongings get attached due to these debts, and this is why everyone needs to know about debt management.
WHAT IS DEBT MANAGEMENT?
Debt management can be the procedures and the processes that are carried out to ensure that a debtor manages to pay the full amount he owes.
Debt management can be done by the debtor or by an institution on behalf of the debtor. Debt management will see a debtor or a debt manager putting in minimum payments that should be paid to service. Initiating solutions that will generate funds or resources needed by the debtor to service the debt.
Institutions perform debt management to individuals who would have defaulted on loans. and in turn, helping them to repay their obligations.
WHAT IS THE IMPORTANCE OF DEBT MANAGEMENT?
Debt management can be done on two phases, that is before default or after default.
The debtor should do debt management before defaulting to prevent his credit profile from being tarnished, make a good working relationship, and also protect his assets from being attached through litigation. Drowning into defaults will put a negative image on both the credit scores and the working history of the debtor with his/her partners or service providers.
Debt management that is externalised will be done to restore a good credit history of the debtor and protect the debtor from being scrapped of their assets through litigation.
On many occasions, South Africans find themselves locked in debts, some of which will be too large for them to settle.
These debts could have accumulated at times when the debtor had a higher level of income or accidentally became a debtor as a guarantor to someone else. In situations like these, there is a need for a debtor and a lender. It will create a win-win scenario through constructive engagements for the debt.
A large number of creditors end up being the losers as some cases are dismissed or declared void. Ending debts obligations that could have been solved between two parties in a stalemate are most common.
WHAT IS DEBT REVIEW?
Debt review refers to the procedures, actions, and processes that are done to revise the amount of debt that a client will be owing to a figure that a client can manage to pay.
The revision of debts should also be done to a minimum level where the credit provider will deem to be acceptable. The debt review procedures can only be done with a credit service provider who is willing to reduce the debt of his or her client. Sometimes circumstances and conditions that the client would have presented can come into play.
Regularly, individual clients do not have the bargaining voice to engage in debt review on their own. They make use of companies that specialise in debt review to do negotiations on their behalf.
WHAT IS THE USE OF DEBT REVIEW?
When debt becomes defaulted, and payments have stopped, both the debtor and the creditor won’t be knowing the outcomes of such scenarios. The tricky thing about going for the litigation way is that you will pay money for a case. You can have a negative result, and the ultimate loser will be the plaintiff or litigant.
On the other hand, if you engage with the defendant outside courts, they can manage to pay something which will give you a better condition. The notion of debt review is that “being repaid with something is better than not receiving anything at all.”
WHO DOES DEBT REVIEW IN SOUTH AFRICA?
There are a vast number of companies and financial institutions that help the public with debt review services.
These companies would be lenders or loan brokers that have a working relationship with the credit provider of the debt that will be almost heading to a stalemate condition. All Debt review services in South Africa are commercialised, and clients will be required to pay some portion of the reduced debt.
Debt review, debt management, and sequestration or usually performed by a single entity, and these entities would also be registered with the National Credit Regulator (NCR). ABSA, Debt Busters, and Old Mutual are some of the companies that provide debt review services.
Default is one of the most loathed words amongst the providers of credit services and loans as it represents one of the major areas from which they lose wealth.
Default also draws a line of aversion between lenders and service providers, but to the clients and stakeholders of credit services, negligence does not occur willingly but as an honest incident that they will have no control over.
WHAT DOES DEFAULT MEAN?
Defaulting is failing to live by the financial agreements of the service, engagement between people or institutions. It usually occurs when one party fails to honour the agreements or breach contractual terms — the defaulter with an obligation to pay a certain sum of money within a specified period.
The default will mean that a debtor has failed to make the required financial obligations within the specified periods and amounts. A default can occur between lenders and borrowers, service providers, and other parties that would have made promises to settle payments.
WHAT DETERMINES A DEFAULT?
Two things determine default, and these are the time and amount of the payment. When you manage to make a payment that is insufficient earlier ahead of the required time but fail to settle the necessary amount, you would have defaulted.
On the other hand, when you make a payment that is in full amount or above the required amount later after the required date, you would have also defaulted. That is, in determining a default time and money are the two elements that will be considered.
WHAT ARE THE CONSEQUENCES OF DEFAULT?
Defaulting can have negative impacts on both the parties that will be involved in borrowing and lending or other services.
To the lender or provider of a service, defaults will result in loss of wealth, both financial wealth and other resources relating to opportunity costs. Debtors or borrowers will face penalties, additional charges or litigation cases from the lender or provider of services when they default.
Direct Debit Payment
We give special thanks to the innovations of software engineers and information and technology gurus, today we all enjoy secure methods of electronic transfers for our payments.
Making payments was not an easy thing, especially when such payments have to be done on a regular interval with the same amounts. The use of direct debit payments by our banks now allows us to honour our financial obligations without putting many efforts.
WHAT IS DIRECT DEBIT?
Direct debit is a payment method that is done by the credit service provider through a banking institution to the account of a debtor to allow for an automated deduction of equal funds or instalments.
The direct debit payments are made when the bank account holder would be the client or debtor, and when a written agreement is made. The bank will then facilitate payments that will be flowing out of the bank account of the lender at the specified periods and amounts.
Direct debits are the most used form of payments by credit or loan providers in South Africa as they ensure consistency in repayment of the credit.
WHAT IS THE DIFFERENCE BETWEEN DIRECT DEBIT AND STOP ORDER?
The majority of people confuse these words and sometimes use them interchangeably, the two work to facilitate a similar role in ensuring periodical payments from a bank account. The direct debit method is done by the credit service provider or a service provider to the bank account of the client or debtor, while the bank account owners do the stop order to their accounts.
The bank account owner is the one who instructs his banker to deduct specific amounts of money for a specified time and intervals; that’s making a stop order.
Loans represent essential elements of credit facilities; they take more than half of the credit services that are provided in South Africa. These loans are given out through a series of procedures that take the form of application, the credit assessment, and disbursement.
The disbursement of the loan acquiring procedures is the most important part for people who would be seeking credit as it is the final stage, which makes the much-needed funds available.
WHAT IS DISBURSEMENT?
Disbursement is a term that is used for referring to activities that are taken to avail approved loans and other credit facilities for use to the clients. A loan that has not been approved will not be disbursed at any time. Disbursement will include the acquisition of funds by the important stuff from the management or responsible officers, drawing up loan accounts for the client, transferring money to the client’s bank account and signing of the loan covenants.
HOW IS DISBURSEMENT DONE?
In the provision of loans, the staff which provides loans to the public is not given access to all corporate financial resources. They are only given funds that are backed by relevant approvals from the credit team.
A loan client will be regarded as a debtor in the books of the lender, and there will be a need to draw a loan account on which the dues of the client will be recorded against. When the client repays the money, the loan account will be deducted with relevant funds.
The loan will be closed only when the loan account reflects that the client has repaid the money in full, and the account has a “0” balance. The actual sending or transferring of funds to the client’s bank account is the last stage of loan disbursement. Once the money is sent, the client will need to sign an agreement that they have received the relevant funds in full.
WHAT IS THE SIGNIFICANCE OF DISBURSEMENT?
Disbursement plays an essential part in both the client and the loan provider. Firstly, it serves as an administrative tool on which the loans are initially recorded in the company’s books. The firm to have correctly updated balances as the client makes repayments.
The loan account will be amortised following the payments that are made by the client. Secondly, the disbursement stage is crucial in allowing the company to perform checks on weather; all loans have been approved or not. This will make sure that the default risk is adequately addressed before giving out loans.
The African continent has some of the poorest countries in the world; most of these countries have persistent political unrest and droughts, which generally have negative impacts on economic performance.
The economic status of a country will have an impact on the living standards of the societies, employment, and disposable income. It is financial hardships that cause a country to have a vast number of citizens falling below the Poverty Datum Line (PDL) where they fail to afford basic needs.
WHAT ARE ECONOMIC HARDSHIPS?
Economic hardships are the adversities faced by the society, country, or jurisdiction in failing to meet necessary income requirements for its citizens. Financial difficulties are identified by high levels of unemployment, low Gross Domestic Product (GDP), high crime rates, social injustices.
Economic hardships can also be identified with a weak health sector, low literacy, and the frequent occurrence of public disorders and natural disasters. These things will all be seen having an impact on the amount of wealth that each country, as indicated by the GDP per capita. This can be misleading where there is a wide gap between the rich and the poor.
HOW DOES ECONOMIC HARDSHIPS AFFECT COMMUNITIES?
The communities are part of the society or country where the economic hardships will be experienced. The community will be at the receiving end of these financial hardships, which means the community will, in the end, have poor people with a very low life expectancy.
All sorts of problems will affect the community when the economy faces hardships, and these could mean unending crimes, diseases, unending-protests, child marriages, etc.
HOW TO CURB ECONOMIC HARDSHIPS?
All citizens and stakeholders of the economy will need to join hands and make sure that the country does not get down in economic hardships. An economy can be easily prevented from falling into problems, but it’s not easy to build an economy that has fallen on its knees.
Citizens and legislators of a country should at all times ensure the existence of consistent policies, reduce crime levels, protect investors’ wealth through consistent property laws, reduce corruption and also facilitate education for the children who will have the ability to work for the economy in the future.
Companies and other service providers render relevant services to specific markets and groups. It allows them to address the exact needs of their clients at the same time achieving quality in their activities.
For a company to know the needs of the client, it must inquire about the information from the client first. Then evaluate the status of the client against the requirements that would have been prevented. The evaluation process is crucial for both the service provider and the client as it allows these two to meet at a point where both parties will deliver.
WHAT IS EVALUATION PROCESS?
An evaluation process combines activities of gathering, presenting, and ranking items or individuals following the requirements of the evaluator. The evaluator will be the person or organisation that will be performing the evaluation process.
Business entities usually evaluate clients as they seek to identify if these people meet the minimum requirements and also identify the best preferences.
WHAT IS THE DIFFERENCE BETWEEN EVALUATION AND ASSESSMENT?
Assessment and evaluation are two words that can be used interchangeably, and both might be used to perform the same task of selecting relevant clients. Assessment is part of the evaluation process, and it is done on the primary stages before performing an evaluation. The evaluation includes an assessment.
The evaluation is done on the tertiary stages after the assessment procedure has been done. Assessment is meant to perform relevant checks on whether the assessed parties meet the minimum requirements. While evaluation goes an extra-mile in ranking the assessed parties by how best they meet requirements.
IS EVALUATION PROCESS USEFUL?
The evaluation process is useful when a company or services provider seeks to minimize losses and maximise gains. The evaluation process will result in the company choosing people or clients who would be regarded as best performers rather than those who meet minimum requirements. That means, evaluating will allow the evaluator to obtain the best on the available resources.
Money is representing one of the essential resources on this planet. With money, people can do wonders, and money can turn areas that were regarded as unproductive to be some of the best producers.
The worst performers can have their abilities enhanced with the use of money. Without the existence of finance, there would be a lot of failures on companies, projects goals and other social activities wouldn’t be achieved
WHAT IS FINANCE?
Finance is the use of money to fund activities, procedures, projects, and other undertakings that human beings might want to partake. Finance comes in the form of cash or credit services that are provided to allow individuals or entities to perform certain activities.
Finance will take various forms and names depending on the area that it is being used or obtained from. In companies, funding will be in the form of shares, debentures, loans, reserves, and other liabilities. The term “finance” can also be used for referring to the act of providing funds for various activities.
WHAT IS THE IMPORTANCE OF FINANCE?
In the modern world, finance is what makes things get along, and everything will need to have financial back-up because money will need to be spent at some point. Every individual or corporate goal will need resources that are sold or charged. Their use to be able to perform transactions and payments we all need finance.
When finance lacks, projects and activities suffer stillbirth or fail to be completed. Thus finance represents one of the most crucial aspects of every activity that human beings and entities undertake.
WHERE TO OBTAIN FINANCE IN SOUTH AFRICA?
Finance is obtained from several places and platforms depending on the required amount, use, and the abilities of the funded party.
Banks are the most common providers of funding for many activities, and they finance the economy through loans, debentures, overdrafts, and credit cards. For companies, the public is an excellent source of finance as they buy shares and provide money for corporate activities.
On the other hand, an organisation can finance its activities through retained profits, which accumulate as financial resources. ABSA, NEDBANK, CAPITEC, Old Mutual, FNB, and The Standard Bank are some of the most common provider’s various types of finance in South Africa.
The economy of any country is made up of various parts depending on the activities. The members of the cabinet oversee these parts. The government ministers who oversee, facilitate, impose, and revise the laws and practices.
Under each cabinet, there will be sectors that a cabinet member will be obliged to oversee. The finance sector is one of the common areas which are highly regulated in various jurisdictions.
WHAT IS THE FINANCE SECTOR?
The finance sector is a section of the economy that deals with banking, credit services, insurance, accountancy, and other areas that are related to management, provision, and auditing of monetary resources. The finance sector is an essential area of any economy, and it’s one of the industries that are automatically formed whenever an economy is created.
The finance sector works to address the needs of all other areas of the economy, starting from manufacturing, mining, health, transport, technology, and energy sectors. In all these different sectors, there will be a high demand for financial services for their activities to progress smoothly.
WHAT IS THE IMPORTANCE OF FINANCE SECTOR?
Money has become a daily requirement for our lives and the finance sectors. The most critical role is providing money, allowing individuals and organisations to pay and receive money through various portals. The finance sector will also offer a credit on the areas that are in shortage at the same time providing a premium to the areas that have an excess of monetary supply.
In addition to these, the finance sector is the ultimate measure and provider of information. They are relating to the economic performance of a country. The finance sector will allow government officials to make informed decisions with data. Mostly like a balance of trade, the balance of payments, gross domestic product, inflation, employment, tax remits, etc.
WHAT ARE THE CHARACTERISTICS OF A GOOD FINANCE SECTOR?
The finance sector is an area of high sensitivity, and this is due to the amount of wealth and risk dealt with. This means that the stakeholders of the finance sector will expect some qualities. Most likely, in the finance system to entrust their funds. The right finance sector should have transparency, reliability, accessibility, and quality that is highly measured with arithmetic accuracy.
With transparency, the stakeholders will need to have full knowledge of the activities that their wealth is going through. The reliability of the finance sector will be addressed by its ability and history of meeting stakeholders’ requirements.
On the other hand, accessibility will mean that the owners of money should be able to access it without complications whenever they want it. Above all other things, all financials should have high arithmetic accuracy in them.
The bible says in 1 Timothy 6.10, “The love of money is the root of all evil.” On the other hand, theorists have argued that “money makes the world go round.” All these will depend on how people use the money whether the payment has been provided responsibly.
Financial advice provides relevant knowledge for the people who access finance, allowing them to make informed decisions and use funds in the right way.
WHAT ARE FINANCIAL ADVICE?
Financial advice is lectures and teachings that are done by professional finance people. It can equip people who access their funds with the relevant knowledge needed. A person might have an idea of what they want to use funds, but there are areas on which the client will need enhanced experience to realise value from the funds.
Financial advisers possess a notion that funds provided can harm the recipient, be useless, or become valuable depending on how the funds are used. Financial advisers will allow the party who obtain funds to escape the harmful and pointless sides of money and only realise the best value.
IS IT USEFUL TO TAKE FINANCIAL ADVICES?
Whether the client takes the advice or not, it will depend on the knowledge of the client. It is advisable for clients to take financial information from the qualified and experienced finance people as they know the best ways in which clients can use money.
When one has little knowledge in the area on which they want to venture in, the financial advisors have the best experience regarding how the funds can create more value. At times the people who acquire funds for activities have been doing it for a long time. They will have little or no need for financial advice since they would be specialists in their areas.
ARE FINANCIAL ADVICES PAID FOR?
Sometimes people are made to pay for financial advice, that is when they do consult business consultancy companies. However, in South Africa, the majority of companies that provide funding will generally have staff members who are responsible for providing financial advice to clients of the company at no cost.
The core purpose of living as societies and communities is to facilitate living and to work together, in doing that we help others and also get bailed out when there is a need to do so. In most cases, people get shortages of funds, and they will have a higher demand for financial aid to carry on with their activities.
WHAT IS FINANCIAL AID?
Financial aid is the term which is interchangeably used with financial assistance, and it refers to the funding help that institutions obtain to facilitate their goals. Financial assistance can be repayable or non-repayable depending on the terms of the provider of financial aid.
Financial aid that is not repayable is usually given as donations and government subsidies. It will only be provided by institutions and individuals who have interests in the areas that will be undertaken. Repayable financial aid will also take the form of loans, bursaries, and other credit facilities.
Among the repayable financial aid, others come with interest charges and others that come with no fees.
WHO NORMALLY ACCESS FINANCIAL AID?
Financial aid is usually given to fund or facilitate programs and activities that will benefit the community or society. Typically, financial aid is provided for the funding of non-commercial activities, those that involve non-governmental organisations, educational institutes, government, and hospitals.
The United States of America (USA), the United Nations (UN) and the European Union (EU) provide non-repaid donations to all countries in Africa, including South Africa. These donations are meant to improve education, health and infrastructural development to the recipient countries
Having funds that are readily available for use is one of the best situations on which companies, individuals, and other organisations can achieve as far as finance is concerned.
The modern world has so much variability in income, at the same time, opportunities and threats can come along our lives, and for us to smoothly pass through these phases, we will need financial back-up.
WHAT IS FINANCIAL BACK-UP
Financial back-up is the alternative means of obtaining funding or funds. When it is set aside in a liquid state for the entity or party that requires funds to use at any time where a shortage arises. Financial Back-up can be provided from external investors, which will be in the form of credit cards, credit purchases, and other credit facilities.
An entity can create its financial back-up by retaining its profits and accumulating these as general reserves to meet business needs that incidentally arise. These might be threats to the corporate activities or opportunities that will need to be taken advantage of.
WHAT ARE THE CHARACTERISTICS OF FINANCIAL BACK-UP?
Financial back-up will only be said to be available if the party which needs it will access it without having to go through procedures with an external party.
The providers of financial back-up might be external when they give the client the ability to spend the money without having to consult them first. Credit cards, Bank overdrafts, and credit purchases are good examples of external financial back-up. Users of these will not need to make applications or consultations when at the time when funds are required.
Loans are not part of financial back-up as there is no surety on whether the applicants will acquire loans or not. The applicants will also need to make applications before obtaining funds, and this is less convenient.
WHO PROVIDE FINANCIAL BACK-UP IN SOUTH AFRICA?
The providers of commercial, financial back-up in South Africa will need to be registered with the National Credit Regulator (NCR) and hold a valid licence to offer the credit services.
The providers should, at all times, comply with the legal provisions of the National Credit Act (NCA) and the Financial Intelligence Centre Act (FICA). These providers include a variety of financial and banking institutions, and the most common of these are Old Mutual, Nedbank, The Standard Bank, Virgin Money, ABSA and FNB.
Hard times usually come when we have minimal financial resources to our own, making us vulnerable to a vast number of problems. These are the times when we see ourselves drown in debts, and other obligations to the extent that our incomes will not help a lot but getting some form of financial bail could help us escape such bondage.
WHAT IS A FINANCIAL BAIL?
Financial bail is a fund that is provided to a person or organisation that is in financial bondage or harsh financial difficulties. Financial bail comes to individuals or firms that will be near the situation of being declared insolvent, nearly getting their assets attached, going into default or facing imprisonment.
Financial bail comes with covenants that are lenient and considered affordable to the majority of people who would be under financial distress. Financial bail comes in the form of monetary grants or loans; however, not all loans are considered as financial bail programs.
WHAT DIFFERENTIATE FINANCIAL BAIL FROM CREDIT SOLUTIONS?
Credit solutions are funds extended to any individual with a promise to repay, while financial bail is funds that are made available to help people or organisations that are in dire problems. The financial bail funds might come in loans, grants, donations, and other credit facilities. The credit facilities that perform the bailing function will have meager interest rates and right uptake of clients with bad credit scores.
In life, we fight for many things; every day we take on activities that require funds, we borrow and spend money with hopes and expectations that will be getting more returns.
When there is a mismatch between the debts and the expected returns, we find ourselves in deficits that will limit our financial boundaries. This financial bondage will deter us from engaging in any other activities on repaying the debts.
WHAT IS A FINANCIAL BONDAGE?
Financial bondage is a state of being indebted and bound by contractual terms that will not allow you to carry a lot of activities that require money, and the bondage will only need the debtor to concentrate on paying the debt.
The contractual debt covenants which prohibit a person from travelling abroad, getting other credits before the credit is finished at the same time not allowing the client to use the money for any other reasons than stipulated is much more of financial bondage than financial assistance. Where the borrower does not have the freedom of venturing into many other things, their prospects of gaining value from the credit become limited.
HOW DOES FINANCIAL BONDAGE DIFFER FROM FINANCIAL BURDEN?
The financial bondage does not necessarily mean that the person is struggling to pay their dues; it’s an issue that comes from the various terms that the client will be bound by. On the other hand, the financial burden is not an issue of loan or credit but the size of the financial obligation concerning their earnings.
Financial bondage will cut the economic freedom of borrowers and make them concentrate on servicing their current debt alone.
Uncontrolled instalment payments are the root cause of financial burdens, and these could be instalments on loans, school fees, insurance and other services that people might be tempted to engage themselves into over a more extended time.
When these instalments accumulate, the breadwinner is left with little funds to cater for the standard requirements or other activities of their needs. This financial burden is one of the most causes of stress, depression, and burnouts amongst many people in our societies.
WHAT IS A FINANCIAL BURDEN?
A financial burden is a situation of having very little or no income due to a large number of monthly obligations that a person will be having.
The financial burden is measured by the amount of disposable income that a person has, an individual could be receiving vast amounts of income, but when all the money gets used up and leave the person with very little or nothing to spend for their wants, such a person would be experiencing a financial burden. A financial burden is something that takes a more extended period of having the breadwinner releasing cash to get things going.
WHAT’S THE DIFFERENCE BETWEEN FINANCIAL BURDEN AND FINANCIAL DIFFICULTIES?
Although both terms address situations where the person or individual will be left with little or no disposable income, the financial burden is a smaller component of financial difficulties. Financial difficulties are a broader term that covers financial hardship and other words like financial bondage and indebtedness.
HOW TO AVOID FINANCIAL BURDENS?
Being engaged in expensive policies, plans, clubs, and services is the cause of financial burdens. Everything that a person does should be calculated based on the amount of disposable income they have, things like high rentals, high fees, high internet charges, significant insurance premiums, and other monthly obligations that will put a person into financial burdens.
Renting affordable houses, using affordable schools and premiums will allow everyone to escape financial burdens as their incomes will always have something extra for them to spend.
Once in a lifetime, everyone can admit to having found themselves in a situation where funds will be needed for a vast number of things. You could have financial requirements that exceed both what you earn and what you expect to have in the following month.
These financial difficulties could be triggered by many things which can range from debts, accidents, financial burdens, and bondages.
WHAT ARE FINANCIAL DIFFICULTIES?
Financial difficulties are a state of falling short of funds to the extent of being unable to perform what is expected or what should be done. Economic challenges are situations that come up when an individual or company income falls lower to the extent that they will no longer be able to perform regular tasks.
Although most parties that face financial difficulties will be those with low income, economic challenges are not caused by low pay. Past spending habits trigger it. A person with a low income might not have financial problems, as long as he/she can perform regularly, there would be financial adequacy
WHAT ARE THE CAUSES OF FINANCIAL DIFFICULTIES?
Financial difficulties usually occur due to unexpected events that put a strain on your budget or reduce incomes occur. These events could be accidents, sickness, or dismissal from work, and these frequently give results in increased pressure on the income meaning that the available income will be lower than funds needed to cover regular expenditure.
HOW TO AVOID GOING INTO FINANCIAL DIFFICULTIES?
Everyone can run into financial difficulties, but some few things could be a help in escaping looming financial problems. These would be activities or ventures that will allow an individual to receive a consistent form of income or leave some income for expenditure at the time of distress.
Making savings during the time of earning is one easy way; savings will allow you to have money to spend as you look for an alternative. Making business ventures is one of the best ways of avoiding financial difficulties. A business will give a parallel income, making sure there will always be something to look out for when the other line of income is cut.
In every area, sector, or society, there are customs, beliefs, and practices that are regarded as the right ones. When you fail to follow or evade such customs, you defy expectations, and everyone else will accuse of wrongdoing. Financial ethics address the morality, faithfulness, and integrity of financial service providers to the community and societies that they operate in, making them reliable and valuable to the citizens.
WHAT ARE FINANCIAL ETHICS?
Financial ethics are the activities, procedures, and actions that financial institutions undertake to display moral behavior in the provision of financial services. These ethics result in the gain of trust and reliability between the lender or other financial services providers with the community or market on which they operate.
In the business world, good financial ethics will bring a good perception for the company, and that is called “goodwill.” Goodwill is an asset that a company earns from ethics, and it is a valuable financial asset that could be responsible for the success of a business.
WHAT ARE THE COMPONENTS OF FINANCIAL ETHICS?
Transparency, reliability, legality, accuracy, and ethical practices are some of the core of financial ethics. Openness is making things clear and understandable to your stakeholders and clients. All information provided regarding what the service will be all about, each party knowing its responsibilities, rights, and obligations.
Financial services should also be reliable; there should be a high level of accuracy, especially on things that require arithmetics. All services should be legal and comply with local and international laws that govern a relevant field of finance.
Everyone wants to be in a condition of being able to move around making investments, purchases, and payments and have something extra in their name. Being financially stable is what all people want, although the situation is hard to achieve for everyone, each day we are all seen trying to maximise our wealth so that one day we will have enough.
WHAT IS FINANCIAL FREEDOM?
Financial freedom is a state that exists when a person or entity is not in financial difficulties. This could mean that the referred party would have distanced themselves from financial bondage, financial burdens, and over-indebtedness.
Financial freedom exists when there are enough funds to make the required expenditures, payments, and purchases for the needs and wants of the person or organisation. Financial freedom is an issue that has more to do with self-esteem and goals set by each.
Human nature is that when goals are satisfied, we create more targets that are larger than the achieved ones. It makes our financial freedom distant each time that we deliver something.
WHAT DETERMINES FINANCIAL FREEDOM?
Financial freedom can only be attained by an individual who owns what they spend, and it only comes when a person has managed to meet basic needs. After these, additional goals that are set for wants (luxury items) and the amount of wealth available to carry-out these will determine how far an individual will be from attaining financial freedom.
A person of low income can attain financial freedom when they meet their needs and have little value wants. People with high incomes can also fail to achieve financial freedom when they set goals that are too distant from their capabilities.
Everyone lives life for a purpose, all the little things that we do are part of the bigger plan of obtaining visions and goals that we have set. We will all need resources along the way to our ideas and goals, but these resources will require funding to be obtained.
Funds may come from our own pockets, but there are some extends when we experience shortfalls, these are financial gaps that might distract or delay the timely attainment of our visions.
WHAT IS A FINANCIAL GAP?
A financial gap is a difference between the required funds and the available funds to do an activity, project, or performing any other wanted transactions.
The financial gap does exist when individuals or companies pursue goals and visions. That means situations that are related to accidents, tragedies, financial bondage, and burdens do not result in a financial gap, but financial hardships, difficulties, and bondages.
A person or organisation with a financial gap will not be under pressure or emergency, and a gap exists as part of the wants that were planned. A financial gap can be ignored or canceled when the party involved decides to abandon or forgo the activities that will have a shortage of funds.
WHAT IS THE DIFFERENCE BETWEEN FINANCIAL GAP AND FINANCIAL BURDEN?
A financial burden will be obligations that a party has made contractually. A person with financial responsibilities will be indebted if they fail to make relevant payments.
On the other hand, financial gaps are not obligations, and they are shortages that arise when one decides to carry an activity, project, or other things that need money. People who face financial gaps may choose to forgo the event, and they will not be indebted in any way.
HOW TO AVOID FINANCIAL GAPS?
There are three ways of avoiding financial gaps, and the first way is to venture into projects or activities that can be sustained by your financial resources. In this way, there will be slim chances of having a shortage of funds.
The second way is to avoid carrying extra activities and projects at all. This way, you will avoid all the risk of running into financial gaps, but there will be no premium or chances of increasing your income at all. Alternatively, external finance can be sourced from providers of financial credit. A way of covering financial gaps could be personal loans, short-term loans, and credit cards.
Banking is anything else that is related to formalised financial activities of the rich people and elite communities.
In Africa and some parts of the world, there has been a large number of people who failed to access financial services due to their low income, remoteness, or non-existence of financial institutions in their areas. Financial inclusion comes as a rescue to these communities, making sure that more people get a chance to move along with formalised financial services.
WHAT DOES FINANCIAL INCLUSION MEAN?
Financial inclusion is a term used to refer to the activities, conditions, actions, and programs that encompass previously marginalised, remote, and underprivileged communities in the provision of financial services. Financial services that are covered facilitate financial inclusion will be only those that are formalised offered by registered financial services providers.
These could be banking, personal loans, credit cards, and other credit services that will be issued in the relevant jurisdiction.
WHO IS EXPECTED TO FOSTER FINANCIAL INCLUSION?
Organisations that are registered as providers of financial services will be expected to play an essential role in fostering financial inclusion.
On the other hand, the government and its departments will be expected to put the relevant infrastructures that financial institutions will require for their services to be done naturally. The use of the internet has improved most communities’ access to financial services, thus indirectly contributing to financial inclusions.
WHAT IS THE IMPORTANCE OF FINANCIAL INCLUSION?
When a section of an economy lags behind the impact will put a dark cloud on the whole economy. In an area that has no access to formal financial services, illegal activities like unregistered lending and money, laundering take place as the communities will be the market for these.
An economy that progresses as a whole will have strength in its financial system, making sure that everyone contributes to the building of the economy through taxes.
Money plays an essential role in the regular part of our lives, helping us to make purchases, payments, and perform other transactions.
For the public to achieve proper and efficient use of money, there is a need for intermediaries, those that allocate, control, provide, and facilitate financial resources to the public. Financial institutions are at the core of promoting trade and other activities that human beings carry with a need for funds.
WHAT IS A FINANCIAL INSTITUTION?
A financial institution is an organisation that works to provide funds, act as a brokerage for financial assets, or regulate any activities that deal with funds. A financial institution is a registered bank like an investment firm, credit services provider, broker, credit bureau, or even a regulator of financial services.
For an organisation to be regarded as a financial institution, its core business should be in the area of finance, banking, provision of credit services, investment, or financial brokerage. Accounting firms, insurance companies, and those who practice taxation are also financing institutions, but on various occasions, they are classified in their category.
WHAT IS THE DIFFERENCE BETWEEN A FINANCE INSTITUTION AND A CREDIT PROVIDER?
A financial institution’s core business is the provision of funding and money-related services, and it encompasses some entities that provide credit services. Credit service providers who do lending as their primary business are classified under the category of finance institutions.
However, other credit service providers provide credit to their customers as part of their selling strategies. In South Africa, whether the company is a financial institution or trader, it has to register with the National Credit Regulator (NCR) when providing credit facilities.
WHAT IS THE IMPORTANCE OF FINANCIAL INSTITUTIONS IN SOUTH AFRICA?
Financial institutions make everyday activities move smoothly, and they provide funds, information, investment, facilitate payments, and trade. These are the things that South Africans do daily, and when one of them gets missing, the whole thing will be messed up.
We all need to be provided with funds when we have a financial shortage so that we can meet our immediate requirements. It is financial institutions that offer payment platforms for us to swipe our cards anywhere. Helping institutes like RCS, MasterCard, and Visa help South Africans maintain to utilize their funds without any constraint.
Your life might be like that, in the previous year you obtained a car on credit and had your child to attend a private school in January.
Just before mid-year, your house was insured by a top of the range insurance company before staffing it with a maid and a gardener. These are some of the examples of healthy activities that we carry as human beings, which result in financial obligations.
WHAT IS A FINANCIAL OBLIGATION?
A financial obligation is a responsibility to fund an activity, process, or project that is triggered by our past actions. Typically, financial obligations come in a long-term or in a series of payments that will need to be performed. The service debtor ill keeps obtaining services that will be rendered by a service provider.
Financial obligations are only created by people who earn an income. When there is nothing to spend, there will also be no obligations. Rentals and school fees are one of the most common financial obligations that any adult South African might have created in part of their lives.
WHAT ARE THE CONSEQUENCES OF CREATING FINANCIAL OBLIGATIONS?
Financial obligations come can result in positive or negative outcomes for the person who initiates them. Usually, financial obligations that are due to personal development or business related undertaking will yield positive outcomes.
The benefits of education, insurance, medical aid, and business ventures turn to have a very high value as compared to what the person would have contributed. These financial obligations will give a premium for the risk and effort that a person would have undergone. On the other hand, financial obligations that have a high element of luxury typically result in a financial burden.
These would add no value to the client at the same time, straining their budgets. Expensive gym membership, club memberships, and credit purchase of non-income generating assets are some of the activities that have brought problems to many South Africans.
Our history reveals so much about what we have been through, but in most circumstances, an account could be a good indicator of the normal behavior of a person. The notion that users of financial statements possess when they judge or assess clients basing on their financial performances.
WHAT DOES FINANCIAL PERFORMANCE MEAN?
Financial performance is the measure of financial wellness, creditworthiness as obtained from the trends of historical events in comparison to other institutions or individuals.
Financial performance can also be the current financial wellness or stability in comparison with the previous state, and this will be done on a single individual or organisation. The financial performance reveals the clients’ ability to meeting financial obligations basing on their history, and it is the ultimate measure of credit risk in entities.
A party that has a history of taking credit and paying them in timeously at the same time will be regarded to have an excellent financial performance.
Let’s say, JB Holdings and Markham Ltd are two companies that want to supply gasoline to Highline Logistics. Both submitted their bids to provide fuel for the next trading year. JB holdings made sales of 10 million, have assets of 6 million, and profit of 5 million.
On the other hand, Markham Ltd made sales of 9 million, a profit of 4 million and it has assets of 8 million. When these two companies’ financial performances are compiled, JB Holdings has managed to achieve higher revenue, and profits as compared to the other. That means J.B Holdings will be regarded to have excellent financial performance.
HOW ARE FINANCIAL PERFORMANCES MEASURED?
There several tools that are used to measure financial performance; the most common ones are accounting ratios. These are ratios that make comparisons of companies’ results over various periods or between two firms in the same line of business.
The return on capital employed (ROCE) is the ultimate measure of profit that shows how the company has managed to utilize its assets (capital) to obtain benefits. There are also other ratios that reveal important information about a company’s performance, and these include earnings per share, dividends cover, current rate, and quick ration.
Planning is the most important thing on all the activities that we undertake, at personal or institution level plans will allow us to coordinate our resources and made proper preparations to improve the prospects of attaining goals.
Financial plans are essential in addressing the shortages and excess that align with financial resources before their occurrence.
WHAT IS A FINANCIAL PLAN?
A financial plan is usually referred to as a budget. It is a compilation of expected income and expenditures for a foreseeable period.
A financial plan will have three components, which are the cash or bank balance depending on the form on which the funds will be stored, the expected income and expenditures. These are the essential components of the financial plan which should not be missing at any time that the document is presented.
The income section will include all elements that result also, and the expenditure section will also include all aspects that occur in the deduction of cash. Financial plans will have all the figures as expected things rather than the actual happenings.
WHAT IS THE USE OF FINANCIAL PLANS?
In addition to assessing whether there will be a shortage or excess of financial resources, financial plans are supposed to help in achieving the four functions of planning, organizing, controlling, and coordination of resources.
The control element of the financial plan is that the users of the program will use the expectations as guidelines, making sure that they do not deviate from the figures or amounts that will be on the plan. In doing that, we organize and coordinate resources making sure that everything will be in its ready state for an activity.
In life, some people live on ripping others, and they take chances to extract profits from events and scenarios to disadvantage the so-called clients.
When you happen to obtain services from a bogus institution, unregistered lender, or a money launderer, you will happen to be a prey rather than a client. Here and there, you will be ripped off on what you have, and this occurs when there is no suspicion at all.
WHAT IS A FINANCIAL PREDATOR?
A financial predator is a firm or individual that practice predatory lending. Predatory lending is the provision of financial credit to clients. Very few alternatives of highly restrictive terms in a bid to the profiteer, attach property, takeover, acquire or merge with an entity in its business.
Financial predators can be registered entities that seek to take advantage of credit laws and contracts that they craft to bind the client to their service. Victims of predatory lending can either be individuals and or organisations that will be clients to the firm.
HOW DOES PREDATORY LENDING HAPPEN TO INDIVIDUALS?
Individuals usually have few alternatives for borrowing, and their situation becomes worse when they have an adverse credit record. This will push them to opt for secured funding or loans on which they will be required to declare some of their assets as collateral.
The financial predator will then charge these clients very high interests, service fees, and penalties in a bit to maximize their profits on such people. When the individuals fail to make repayments, their assets will be attached as they would have been declared as collateral security, which is legally enforceable.
HOW DO COMPANIES FACE FINANCIAL PREDATORS?
In the business world, predatory lending is one of the most common strategies that finance managers use to make a smooth takeover, merger, or acquisition of another firm in the area of their interest. Companies frequently financial results on the media, and those who have poor financial performance are easily identifiable.
Financiers will know that all companies that face problems in their operations will have funding requirements, with that they will offer finance with terms that will lead to the acquisition of shares, merger with the entity or overtake ownership.
IS PREDATORY LENDING LEGAL?
Unfortunately, no law has so far been passed to prevent predatory lending. Some of the companies that practice predatory lending are large multinational corporations that have controlling stake and bargaining power with various jurisdictions and laws.
There is no legal recourse that a victim or prey of financial predators can easily win as the predators align their activities with the law with ripping assets from the financially struggling parties.
Nations, companies, and various jurisdictions fight for resources, they know that once the wealth is obtained, they will be able to control and perform anything that will be needed.
These resources are the wealth that will be monetary value, their ability to be converted into finding and make necessary purchases and payments represent the liquid financial resources.
WHAT ARE FINANCIAL RESOURCES?
Financial resources are assets that can be used to fund an activity, project, or any other undertaking that the company will be doing. The most common form of financial resources is “money in the bank,” money has gained the best place whenever financial resources are mentioned. It represents the most liquid of the assets.
With money in the bank, a person can perform transactions and make purchases without going through some form of conversion of values and approvals. From cash, financial resources will be money market instruments, working capital, and credit solutions.
ARE ALL FINANCIAL RESOURCES ALL SPENDABLE?
Only financial resources with high liquidity can be easily spendable on other things. Valuable assets like land, property, plants, and equipment can be used to fund projects, activities, and other plans, and in that nature, they will become financial resources.
However, these assets have a shallow level of liquidity, which means the owner of such resources cannot easily do other forms of expenditures with these.
No economy can be run properly without the existence of reliable and efficient financial services. These are a group of related monetary activities that facilitate trade and exchange of goods and services, through which the economy can function smoothly.
WHAT ARE FINANCIAL SERVICES?
Financial services involve the management, creation, disbursement, and provision of funds to the society, organisations, and individuals. Financial services are professional activities of lending, banking, accountancy, insurance, and other wealth management services that are highly monetized.
The banking system represents an essential element of financial services of any nation as it deals with large amounts of wealth which are determinant in directing the flow of an economy.
WHAT IS THE ROLE OF FINANCIAL SERVICES?
In South African and the world over, Financial services play an essential role in smoothing the economic activities of a country. Financial services roles can be explained in the following ways
If it wasn’t for the presence of financial services, we could all face hardships in trading or exchanging our goodies and services. Financial services led to the development of money and other wired transfer, which allow us to buy and sell our items at equivalent values.
With the wired system, people can now trade goods and services worldwide, make payments that do not need change or people to be in the same area, making life easier for everyone.
MEASUREMENT OF WEALTH
Imagine a situation that would not have financial services in the modern world, how would people know the wealth of their houses, cards, and productions made by countries. The financial system makes it easier for all parties to measure their wealth and be able to make fair exchanges whenever the need arises. This is important in making fast and fair exchanges that do not have conflicts on monetary values.
In the modern day, financial institutions like banks have an essential role in distributing wealth. These institutions ensure that the wealthy get to contribute heavy taxes and other statutory financial requirements, in the end, the richer and the poor will enjoy and use the same public amenities.
The roads, public hospitals, public schools, general lighting, parks, and other government resources are a result of re-distributed wealth which can be traced back to financial services.
Every bank that takes savings or facilitates daily banking for current account clients facilitates credit to those who need funding and provides interests to those who have wealth but have no immediate need for expenditure. The bank makes sure that all cash resources do not lie idle as they will if individuals kept cash under the bed, thus making sure that funds are there where they are needed.
Events tend to turn around our plans, putting in new requirements and releasing those that we expected to happen, such activities will trigger financial shortfall when the value of the original condition is higher than what we expected. Deficits occur to create additional requirements for financial resources.
WHAT IS A FINANCIAL SHORTFALL?
A financial shortfall is a shortage of funds or economic resources that occurs when the forecasted amount of expenditure differs from the actual amount that is required.
Financial shortfalls are not forecasted; they only occur when an individual or organisations financial resources are reduced, or the expenditures become increased due to events that were outside the plan. Financial shortfalls amongst individuals and institutions can be caused by accidents, change of ideas, and the occurrence of emergencies.
WHAT IS THE DIFFRENCE BETWEEN A FINANCIAL SHORTFALL AND FINANCIAL GAP?
A financial shortfall occurs at the current moment due to the occurrence of events that were not forecasted, while a financial gap emerges as a result of events that were planned and can be predicted to be the number of funds required to perform certain activities.
A financial gap can be funded ahead of time, while a shortfall will bring a need to compromise other things that need funding or forfeit the activity. When a party does not have funds at the current moment, a shortfall will not be solved.
HOW ARE FINANCIAL SHORTFALL MITIGATED?
Depending on your abilities, financial shortfalls can be prepared for or prevented to avoid the consequences of not performing the required transaction. Tools of financial back-up like credit cards and extra funds will help to cover the shortfall when it occurs.
Financial shortfalls can also be mitigated by the use of futures, forwards, money market instruments and options. These financial assets will help to mitigate the risk of changes in prices by locking the current price for a transaction that will occur in the future.
From corporate, social to the personal level, all the activities that human beings carry should be supported by funding plans that will facilitate the acquisition of resources and other deliverables that will be needed throughout the event. Financial solutions are what managers of all projects and activities should obtain first, before carrying any other activity.
WHAT ARE FINANCIAL SOLUTIONS?
Financial solutions are answers and resolutions to financial shortages, bondages, over-indebtedness, and other conditions that might need money.
Financial solutions will be required on almost all events that happen outside the prescribed or planned activities, meaning that it is infrequent to find businesses that do not need financial solutions. When there is a shortage of funds, the funds which will be availed are the referred financial solutions.
WHAT ARE FINANCIAL SOLUTIONS?
Financial solutions are answers and resolutions to financial shortages, bondages, over-indebtedness, and other conditions that might need money. Financial solutions will be required on almost all events that happen outside the prescribed or planned activities, meaning that it is sporadic to find businesses that do not need financial solutions. When there is a shortage of funds, the funds which will be availed are the referred financial solutions.
WHERE DO WE GET FINANCIAL SOLUTIONS?
Financial solutions can come in the form of grants, loans, credit cards, and other credit facilities depending on the type of funding that is required and the amount that will be needed.
Not all financial solutions are commercialized; that means, anyone can provide a financial settlement without the need of registering anywhere. Individuals, corporates, and other institutions can effectively provide financial solutions without violating laws.
In finance, the statement of financial position, commonly known as the “balance sheet” is a list of assets and liabilities that a business entity will be having. These assets will be shown in their monetary values to give the balance of wealth that an entity will be having.
The statement of financial position is the ultimate measure of financial status, although it will not be drawn in the same way to individuals, it can also be used to show the financial status of individuals.
WHAT IS A FINANCIAL STATUS?
Financial status is the monetary value of your wealth. Your wealth will be the net of your assets after deducting all the liabilities. A financial status can be measured for both individuals and institutions by a simple way of adding up the monetary value of their belongings and deducting all the relevant liabilities. These liabilities will be what the person or entity will be owing to other parties.
In finance, the value of your assets does not represent your wealth or financial status unless the full amount liabilities and other financially measurable owed resources are deducted from such a figure. When your assets have a lower value than your liabilities, it means you own nothing and have become insolvent.
FINANCIAL STATUS AND LIQUIDITY
Although good financial status and liquidity normally have a positive correlation, in some scenario these two will not exist at the same time. A good financial status will mean that a person or an organisation is more wealthy than others, this wealth could be land, buildings, plants, and other large and valuable items.
When liquidity occurs the referred party will have assets that are easily convertible into cash in order to allow them to make expenditures and perform transactions. A wealthy person might have a good financial status but have no liquid financial resources, whilst someone with a middle income might be very liquid, further than a rich person.
Accidents and emergencies happen randomly, and that means no one can forecast for the occurrence of a crash. When we get involved in such situations we suffer both emotionally and financially, at that time life might seem to be a little bit unfair, but it’s part of life. Such emergencies might leave the victims in a situation of financial tragedy.
WHAT IS A FINANCIAL TRAGEDY?
A financial tragedy is a significant shortage of funds. Also could be termed as a collapse of financial resources that is triggered by accidents, robberies, natural disasters, and fire. An economic tragedy will cause total confusion on the way items, activities, and projects are funded since it will have a high impact on the source of funds.
Financial tragedies occur on a random basis, and there will be no reliable forecasts or patterns that can be drawn to predict the occurrence of financial disaster tragedies. When an entity or individual is in an economic tragedy, there will be very slim chances of making a quick recovery.
WHAT IS THE DIFFERENCE BETWEEN FINANCIAL TRAGEDY AND FINANCIAL SHORTFALL?
Both financial tragedy and financial shortfall might be caused by events that were not foreseen by the owner of financial resources, but the financial tragedy will be very much significant to the extent of disturbing or halting all the operations.
Financial tragedies only occur due to things that cannot be controlled by the owner of financial resources, while financial shortfalls can result from anything that happens to give a deficit on the funds.
HOW TO CURB FINANCIAL TRAGEDIES?
Financial tragedies cannot be prevented, but their impact can be mitigated by the use of insurances and alternative finance. Insurances can cover a certain amount of loss that happens due to tragedies, but they will not reward the claimant of the opportunity costs or other damages that were triggered by the occurrence of such events.
On the other hand, the victim of a financial tragedy can also apply for funding from organisations that compensate victims of natural disasters.
The modern corporate environment calls for employees who are multitasked, those who make a change when it is needed at the same time adapting to new situations and conditions in the shortest possible time.
These people are what employers call a flexible workforce, and they are an excellent asset for the company that wants to make profits.
WHAT IS FLEXIBILITY?
Flexibility is the ability to change from one task, area or terms and work well in the other field without requiring significant changes.
Flexibility will also address the state of being multitasked, that is having various skills and abilities to the extent that you can do well in multiple areas. Flexibility also applies to assets, financial assets, and many other things. When an asset is flexible, it merely means that it can perform more than one task for the owner.
WHAT IS THE BENEFIT OF FLEXIBILITY?
A flexible asset or resource can perform various duties for its owner. Meaning that the owner will enjoy multiple services at the cost of a single asset, significantly saving costs related to acquiring and servicing an additional asset.
When an individual is a multitasker, there will be a lot of advantages to him/herself and the people who will employ him. Being multitasked will mean that you can venture into various ways whenever your current field is no-longer productive. To the employer, it will mean additional value as you can be employed in multiple departments.
Flexible Repayment Terms
Loans and other credit facilities usually require clients to make a fixed amount of repayments that will be deducted through the direct debit payment system from the bank account of the debtor.
With these forms of repayment, some people feel compelled as they might want to repay their dues with whatever amount that they will spare out of their budgets. A few creditors will offer this service to their debtors, but the flexible repayment also adds value to the client.
WHAT ARE FLEXIBLE REPAYMENT TERMS?
Flexible repayment terms are various alternatives for servicing a debt. Attempting any of the other options with whatever amount that will be available and as long as it keeps the loan account updated.
A flexible repayment term is one that allows clients to made advance payments. It will allow clients to make payments using cash, swipe, bank transferee, direct debiting, or stop orders.
The flexibility of the repayment will be determined by the amount and nature of financial resources that the client will be having. If a client has cash, they should be allowed to make repayments in cash and so on other portals.
WHAT IS THE DIFFERENCE BETWEEN FIXED AND FLEXIBLE REPAYMENT TERMS?
A fixed repayment term will limit the client to making payments from the same platform, and the fees will be made at the same time of the month or whichever period on which instalments will be made from.
Also, the fixed repayment amount will be the same throughout the repayment period. On the other hand, a flexible repayment term will accept payments from various portals, on numerous amounts at different times of the instalment periods.
WHY LENDERS DISLIKE FLEXIBLE REPAYMENT TERMS?
Above all, servicing various repayment portals is costly for the lender. Engaging a client into a flexible repayment term will mean, that the lender does not lock the income of the client. It is channelled into their bank account, and this will increase default risk.
Clients will make payments on their times, and the amounts might not be sufficient, and this might have an impact on the financial resources of the lender. On the other hand, the lender who has engaged clients with fixed repayment terms cannot make good forecasts. They will receive, and this might mean another problem.
People with good credit scores will have good prospects of acquiring funding from various platforms, and these could be credit cards, bank loans, and personal loans from financial institutions.
Having a variety of places that you can obtain funding is one of the best situations that an entity or individual can attain. These funding alternatives will bring some level of surety and financial stability in the operations or activities that will be undertaken.
WHAT ARE FUNDING ALTERNATIVES?
Funding alternatives are the prospects, chances of obtaining funds from various institutions, platforms, and programs. Having many funding alternatives is an ultimate indicator of the liquidity of the company or individual who would be seeking funds. The funding alternatives can come in the form of internally generated financial resources or those that are acquired from external funders.
The internally generated financial resources will be in the form of general reserves, retained profits and savings that a company or individuals put aside. On the other hand, external funding alternatives can be personal loans, credit cards, home loans, and other credit services that would be available.
HOW TO CREATE FUNDING ALTERNATIVES?
The best way of creating funding alternatives is by creating a good credit standing with your stakeholders and lenders. Everyone has trust in someone who is financially disciplined, knowing when to repay your dues and honoring contractual agreements will go an extra-mile in strengthening the relationship between your suppliers and lenders.
As each day passes, the days of our lives get numbered on earth; thus, one day, our spirits shall separate with our souls as we permanently depart. Death is one of the unfortunate occurrences which will happen to everyone, you can’t avoid it, but you can protect your family and loved ones from financial responsibilities at your funeral. Funeral covers will help to take care of expenses at your funeral and leave something for the survivors.
WHAT IS A FUNERAL COVER?
A funeral cover is an insurance benefit that covers the funeral expenses of the funeral policy beneficiaries.
The funeral cover, can come in monetary value and or services of burial, transportation, and other services that will be required at a funeral to cover a member of the funeral policy. The members of the funeral policy are the people who would be registered so that when they pass on, the funeral expenses will be taken care of by the insurance company.
Funeral cover usually caters expenses of buying the coffins, providing food at the funeral, transportation of the deceased and mourners, fees charged by the undertakers and municipal cemeteries. On some occasions, the survivors will be given money to add up to their finances.
WHAT IS THE DIFFERENCE BETWEEN FUNERAL COVER AND LIFE COVER?
Both the two are insurances that can be claimed when there is a single pass away, and the difference arises on what will be covered and who will be insured. A funeral cover will cater for the expenses of funeral and burial related expenses for both the principal holders and the beneficiaries. A funeral cover can provide for the funeral of many people who would be clients of the funeral assurance company.
On the other hand, a life cover does not cater for funeral expenses. It provides for the debt and other financial responsibilities that a person had before passing out, it just repays all dues in full. A life cover will only cover a single individual.
Good Credit Standing
Nothing is disturbing as going to a financial institution with high hopes of getting a loan and be told that, “unfortunately credit rating has gone too low.” These are some of the experiences that a vast number of South Africans face when they attempt to access funds or services without a good credit standing.
WHAT IS A GOOD CREDIT STANDING?
A good credit standing is a state of having excellent credit profiles with various stakeholders and service providers that an individual or institution would have worked with.
A good credit standing is a state that is built by the client over time, and it comes from performing the required financial obligations in time, repaying the credit in full as required by the credit service provider. Higher credit scores are ultimate indicators of good credit standings as they give an overall view of how the client has performed with a variety of lenders and service providers.
HOW DO MAKE A GOOD CREDIT STANDING?
A good credit standing is easier to make than to rebuild. It is a state which is very sensitive to negative repayment behaviors. A single installment missed could reduce the credit standing of a client, and this might take three or more payments to restore.
A client can make good credit standing by making timely and sufficient repayments to service providers and lenders. Over time, these providers will have a good perception and trust in the client’s ability to make repayment. This means, there will not be any form of hesitation when the client needs credit services.
DOES GOOD CREDIT STANDING IMPROVE PROSPECTS OF GETTING LOANS?
Absolutely yes! When you have a good credit standing, there will be nothing much that you will need to obtain funding than making an application.
Credit assessment results are what bar many people from accessing loans and other related credit facilities. All credit service providers want to avoid default risk, and they will rush to clients who have good credit standing.
Nobody really wants to make repayments a day or two days after borrowing a loan, obtaining credit cards or personal loans. We all need some time before we can start repaying for the financial credit that we have obtained and this is one of the determinants of the value that we obtain from credit services.
WHAT IS A GRACE PERIOD?
A grace period is the time which the lender or creditor allow a borrower or debtor to go for without initiating repayment for the credit services or loan granted. In South Africa, grace periods for most credit services normally take the form of 30-day period which will be the first month before the instalments can commence.
VARIOUS GRACE PERIODS IN SOUTH AFRICA
In most circumstances, grace periods are equivalent to the length of one instalment period. For example, if a loan is repaid on a weekly basis, the grace period normally takes the first seven days. On situations where the loan/credit is paid on a weekly basis, the grace period takes a month.
The same will go for instalments that are larger or smaller. Credit cards and student loans have different grace periods than that of personal loans and other credit services. Student loans normally give a longer grace period, allowing the student to learn, graduate and find a job before initiating repayment. Credit cards on the other hand take between 55 to 60 days’ grace period before the client can start to repay the debt.
WHAT IS THE SIGNIFICANCE OF GRACE PERIODS?
Grace periods are one of the most important elements that all borrowers should consider before taking a loan. The most important part is having a credit facility that will allow you with a time gap of utilising the funds and be able to realise value from the same services. It is true that the value of a loan is partly fixed in the length of a grace period of the same loan, the larger the grace period, the larger the value which you will obtain from such a loan.
The issue varies directly with the concept of the time value of money, that is R1 000 you have today will not be similar to R1 000 you will be given after 30 days, the earlier will accumulate to more than R1 000 before the 30-day period ends.
Shelter is a basic need for every individual, and this shelter is secured by having a residential building that is called on your name.
Houses are some of the most expensive basic requirements that everyone needs to have, and very few South Africans can manage to purchase a house in cash. The use of home loans makes it easier for people to buy houses with payments that are smaller and lengthy.
WHAT ARE HOME LOANS?
Home loans are secured financial credits that are extended to individuals to allow them to buy houses or flats. These are long term loans that would be obtained with the building that is under a purchase. For a loan to be referred to as a home loan, it must be used to acquire a building that is used for accommodation or residential purposes.
Large financial institutions and banks issue most home loans because these loans require a large pool of financial resources, those amounts that will be sufficient to purchase a house. Due to the form of collateral security that is available on home loans, the interest rates and charges will be very low as compared to personal loans.
HOW DO HOME LOANS WORK?
Home loans come with two options, loans that require a deposit or initial payment before the client is allocated with a house or those that do not require deposits.
When a client meets the requirements of home loans, they will make applications, and when the applications are successful, the financial institution will purchase a house on behalf of the client. The client will be allowed to move into the apartment at the same time, making the relevant instalments up to the maturity of the home loan.
WHAT HAPPENS WHEN I DEFAULT A HOME LOAN?
A default that is triggered by natural causes, permanent disability and death of the principal home loan borrower will usually be covered with a life cover policy, which means the insurance company will repay all the balances. However, other defaults will result in the attachment and eviction. The house will be used as collateral for the loan that was obtained by the borrower.
WHAT IS THE DIFFERENCE BETWEEN HOME LOANS AND MORTGAGES?
Mortgage loans, home loans, and debentures are all significant components of property finance, but there are slim characteristics that differentiate them.
A home loan is a loan that is acquired for the purchase of a residential building. A mortgage loan is a secured loan that is used to purchase any form of buildings. On the other hand, debentures secured loans issued by companies on a long-term plan
We all borrow money, acquire goods and services on credit or even receive cash before performing a duty or services. These are situations that create debts, but people with a good conscience have some form of respect to their creditors and will always serve a debt to avoid the condition of being indebted.
WHAT IS BEING INDEBTED?
Indebted refers to a situation where an individual or organisation owes money, goods, or services that are due. Everyone can be indebted at some part of their lifetime. The debts might come as a result of your own actions or passed to you.
Being indebted does not only come with financial obligations. Most of the time, it can be services or goods but, a person who owes something that is not yet due will not be regarded as indebted. That means not all debts will have cause indebtedness to the borrower.
WHAT ARE SITUATIONS THAT CAUSE INDEBTEDNESS?
The most common cause of being indebted is borrowing when you borrow money and anything else you become indebted when the lender needs their dues. Clients can become indebted to a service provider or producer of goods. When they receive goods or services before making a payment, the money is needed, and then they will be indebted.
On the other hand, service providers and producers can also become indebted to their clients. When a client makes an advance payment for a service or delivery of goods, the providers will become indebted to their customers.
WHAT SEPARATES INDEBTEDNESS AND DEFAULT?
People who default will be in the same class as those who become indebted. These two are separated by time; that is, a person will become indebted before defaulting.
Indebtedness occurs when the service provider or client needs a service or money; this is the time between the first date of payment and the last date of payment. When the last date of payment arrives with the dues still outstanding, the responsible party would be regarded to have defaulted.
Initiation Fee And Administration Fees
Service providers from various fields of services provide services that need to be accounted and administered to allocate debts and payments to the relevant people. The same applies to loans and other credit services offered in South Africa. The service providers make use of initiation fees and administration fees to fund the assessment of clients and administration of loans.
WHAT ARE INITIATION AND ADMINISTRATION FEES?
Initiation fees are once-off charges that are levied on all new clients, which is on their first engagement with a service provider. They serve the purpose of funding for the assessment that the service provider does before offering services to the clients.
Administration fees are recurring charges that are levied on clients who have obtained a service. They are paid every month as part of the instalment that the client uses when they pay for the services. Both initiation and administration fees come in low amounts. That is, they do not change due to the size or value of the service being obtained.
WHAT DIFFERENTIATE INITIATION AND ADMINISTRATION FEES?
Both charges do not change due to the value or size of the service being obtained, but initiation fees are only paid once, while administration fees are paid every month.
The administration fees will accumulate to be a substantial sum of money when the service period or a loan repayment period is the loan. There is no way of avoiding initiation fees of service, but administration fees can be reduced by shortening the term of the loan repayment period.
HOW TO REDUCE INITIATION AND ADMINISTRATION FEES?
Initiation and administration fees can be mitigated through making use of substantial loans and making sure that the loans are repaid in the shortest period as possible.
The issue with initiation fees is that they are generally flat. Despite the size of the loan or service being obtained. This means when the assistance of a small loan, the amount will be significant, and when the loan or service is highly valued, the charges will be insignificant.
On the other hand, administration fees can be reduced by a smaller repayment term. Consolidation loans are also great tools for reducing the impact of these fees as they combine all loans into a bigger one.
Not everyone can manage to obtain services or make purchases and payments with cash, and various people have differing abilities. A person might have the relative wealth needed to get assistance, but at the same time, lacking enough liquid resources that are required to perform transactions. Instalments allow customers and clients to spread the payment or purchase of their goods and services necessary over a more extended period.
WHAT ARE INSTALMENTS?
Instalments are smaller divisions of a consideration required to obtain a service or goods. In simple terms, instalments represent more modest amounts of funds that are contributed to a stipulated period. It’s to offset the price of products or services that a person or institution would have obtained. Instalments can also be done to offset debt or other services before obtaining them.
Thus a party which makes use of instalments can be a creditor or a debtor to the other party involved. The primary purpose of instalments is to relieve consumers of pressure on their financial resources, allowing them to remain with funds for other purposes.
WHAT ARE THE COMPONENTS OF INSTALLMENTS?
Instalments will be a smaller division of the whole amount that has to be settled. In repaying for loans and other credit services, instalments will be constituted of the principal loans amount, interest charges, insurance, and administration fees. These would be all the funds that will be required to service a loan. The principal loan amount is the actual funds that were given to the client or borrower.
Interest rates are charges levied as a premium to the lender while insurance costs will cover the debt in times of death or permanent injury of the borrowed. On the other hand, administration fees will be the funds required to service the loan through the repayment period.
WHAT IS DIFFERENTIATE INSTALMENTS AND PREMIUMS?
Premiums are a type of instalments used in the insurance industry, and premiums are contributions made by the client towards ensuring their assets, life, and other things. On the other hand, instalments will relate to the payment of anything that is done on a periodical basis with equal amounts.
At one point, you might have wanted to perform a payment or make a purchase, and then your account balance is below the cost or amount of items that you wish to purchase. Such shortages are a bit emotional and tricky experiences that might spoil anybody’s day. Insufficient funds will stop anything from happening unless alternative funding is sourced to cover the shortage.
WHAT ARE INSUFFICIENT FUNDS?
Insufficient funds are financial resources that are below the amount, cost, or price of the payment that the client or customer would be looking to perform. Insufficient funds might have been like that, but the client will not know that they cannot complete the required transactions.
Insufficient funds will mean that a service or purchase will no longer be obtained. The service providers will be only taking full payments for such goods or services. Insufficient funds will represent an instant shortage when trying to make a payment or purchase.
WHAT CAUSE INSUFFICIENT FUNDS?
Three things generally cause insufficient funds, which is a reduction in the financial resources, an increase in price or charges levied on making a payment. When there is an unnoticed deduction in the bank account or cash that is required to make a payment or a purchase, the funds will have a shortage, and that’s part of insufficient funds.
Insufficient funds may also be as a result of an increase that was made by a service provider. On the other hand, the payment portal might levy charges on the client when making payments. Also, when the total of these charges exceeds the balance in the account, there will be insufficient funds.
Everyone needs a reward for the service they offer to clients, and so credit providers and other retailers who sell their goods on credit reveal their intent through interest rates and charges. Interest rates and fees are part of the yields that credit providers including lenders obtain from providing services to the people
WHAT ARE INTEREST RATES AND CHARGES?
A charge is a term that refers to expenses that are levied on clients by service providers, and these expenses could be initiation fees, administration fees, interest rates, and penalties. Charges are an umbrella term for any liability that clients might come across on the course of acquiring services.
On the other hand, interest rates are charges that are levied to the debtors or clients of credit services. The interest rates come as a percentage of the amount that is owed or the principal amount on which the lender has provided to the client. Interest rates and charges represent a return to a service provider.
WHAT IS THE IMPACT OF INTEREST RATES AND CHARGES?
The two parties which are usually involved in the provision of services are the client and the service provider. When interest rates and charges are high, there is a higher return to the service provider, and this means a lot of profit.
When these two are low, it means low return, which is low profitability to the service provider. On the view of the debtor or borrower, charges and interest rates are expenses, and they will have to be as little as possible.
Interest Rates And Charges
Credit service providers and lenders take the risk of extending their funds to clients and customers, an action which could result in defaults and loss of wealth for the creditor.
For these and other risks that investors take, there has to be a premium for the investor. Interest rates represent one of the most average yields that these creditors obtain from exposing their resources to default risk.
WHAT ARE INTEREST RATES?
Interest rates are charges levied to credit service customers and clients in the form of percentages of the principal amount borrowed or owed.
The interest rates are the primary form of income or return to the party, which extends credit or offer loan facilities to the public. The interest rates also represent an initial cost to the client or customer of a credit service.
To the creditor, the higher the interest rates, the higher the return on their investments. For the debtor, this is the opposite. On the debtor, the lower interest rates, the higher the value of a credit facility as they will have more to spend than what they will be required to pay.
SPECIFICATIONS OF INTEREST RATES
Interest rates are expected to be structured in a way that the users and stakeholders can understand them and not seed confusion on clients. All interest rates are written as percentages of the principal loan amount. The interest rates will not be charged on application or administration fees as these are not what the client acquires from the lender.
Interest rates should also specify the periods on which they cover, that is whether they are annual, monthly, bi-annually, weekly, or daily. These specifications will allow the stakeholders to make relevant comparisons of interest rates offered by various service providers.
LEGALITY OF INTEREST RATES
In South Africa and the world over, interest rates can only be charged by service providers who are commercially registered to provide these services. Various jurisdictions have set-up laws that protect consumers of credit services from exploitation through interest rates.
In South Africa, the National Credit Regulator (NCR) puts maximum interest rates and revises these in accordance with environmental changes. Currently, the NCR has put maximum interest rates of 60% per annum on all individual loans and credit services.
The law is a critical factor in any of the activities that people undertake. Whether the operation is being carried at a personal level or institutional level, primary considerations should be done to check whether the proposed actions are legal and do not violate any other acts of the law. Legal obligations represent one of the long arms of the law, one way or the other, and they reach out to those who breach the law.
WHAT IS A LEGAL OBLIGATION?
A legal obligation is a duty, requirement, or pre-requisites that are statutory to a party that wants to take on activities in a particular jurisdiction.
The requirements being lawful means no one is allowed to evade them. A few people would have been specifically excused or exempted by the law can avoid these when engaged in such a service.
Legal obligations are there to protect the public and the environment from the actions of human beings. It could be within a business context, social or any other activities, and the legal obligations should be fully satisfied.
WHERE ELSE CAN LEGAL OBLIGATIONS BE FOUND?
Two parties can also create legal obligations through an engagement that will require enforcement. Meetings like partnerships, contracts, and marriages give rise to legal requirements, and these would be specific to such activity or commitment. When two parties enforce a deal, they create legal obligations for honoring the contracts as they would have agreed in the terms and conditions of service.
WHAT HAPPENS WHEN LEGAL OBLIGATIONS ARE BREACHED?
Everywhere on earth, the law is the top judge of any activity, and no-one is above the law. Breaking a legal obligation is similar to breaking the rule of law, and it has negative consequences to the party, which breaches them and offer recourse to the aggrieved party.
Depending on the type of law and the provisions made under the act of such a lawyer, a person who breaches legal obligations can face a fine, imprisonment or ban from exercising the relevant service.
People require money to carry the various form of transactions and payments; in some scenarios, these people would lack sufficient funds that will be necessary to perform such an activity. In such situations, we will need someone who can extend credit to meet our requirements. Undoubtedly, a loan would not exist without the presence of lenders.
WHAT IS A LENDER?
A lender is a person or institution that extends credit to people or organisations with a promise to repay in the specified period and amount.
A lender can extend credit in the form of assets or funds when the creditor extends credit in the way of money, and the lender is called a money-lender. Lenders who extend credit on a commercial basis should be registered and operate within the limits of the relevant laws in each jurisdiction.
A lender who lends money illegally and to financial services that are not legal is known as a money-launderer. At all times, when there is a lender, there will be a borrower.
WHAT IS THE RELATIONSHIP BETWEEN A LENDER AND A BORROWER?
The existence of a lender subsequently creates a borrower, that’s none of these two can exist separately. A lender is a provider of credit, and a borrower is a receiver.
A borrower will be the person or company that has the requirement for credit while a lender will be the provider of such credit. These two usually exist in the provision of funds, that are on financial loans.
WHO ARE THE LENDERS IN SOUTH AFRICA?
Anyone can be a lender to a person who has a requirement of sparingly available resources.
However, commercial lending can only be practiced by institutions that are registered as providers of credit services. These institutions will need to be registered with the National Credit Regulator (NCR), at the same time, holding a valid licence. Banks are the most common registered lenders in South Africa, and these include ABSA, CAPITEC, FNB, Nedbank, and The Standard Bank.
Other lenders may also exist amongst registered financial institutions and investment firms, and these include Bayport Finance, Old Mutual and Wesbank
South Africa has a wide variety of lenders, and this gives a range of financial and credit services, allowing them to finance their activities and consequently improving their living standards. Lending institutions come to serve the populace with the much-required loans, credit cards, and other financial credit.
WHAT IS A LENDING INSTITUTION?
A lending institution is an organisation that provides commercial finance credit in the form of loans, credit cards, and other investment securities. A lending institution will be the organization that has lending as part of its core business, meaning that if an organisation lends funds to another entity, it does not become a lending institution.
Lending institutions collect a more significant part of their revenue through interests, service fees, and initiation fees levied on loans and other credit products that would be provided by the company.
WHICH ARE THE LENDING INSTITUTIONS IN SOUTH AFRICA?
In South Africa, lending is commercially done by registered entries that will be holding a valid National Credit Regulator (NCR) licenses. A company that gets recorded as a bank will automatically become a lending institution. Also, since its core operations will involve the collection of deposits and providing these as a credit to people who need it.
The most common banking institutions in the country are ABSA, CAPITEC, FNB, Nedbank, and The Standard Bank. In Addition to these, other institutions are familiar with the provision of loans, and these are Bayport Finance, Wesbank, and Old Mutual.
WHAT IS THE DIFFERENCE BETWEEN LENDING AND CREDIT PROVISION?
These two practices are very much similar, and people usually apply the terms interchangeably. Lending is the provision of financial credit, (generally known as loans) with a promise to repay in specified amounts before the agreed date.
Credit provision is the extension of credit facilities, and these would include loans, hire purchases, leases, credit sale, and others. Credit providers can be referred to as lending institutions, and lending institutions can also be referred to as credit service providers.
Your intent to acquire a loan is primarily identified by the loan application you make with the loan provider. The people are just members of the public to the lenders unless they register their intent to be stakeholders and engage in a service. The loan application is one of the most crucial stages of acquiring a loan, and its significance is outstanding to anything else that follows.
WHAT IS A LOAN APPLICATION?
A loan application is a set of activities that are done to submit requests for financial credit from a credit service provider. These activities would be usually written offers that are done on a form that is issued by a credit service provider.
The loan application has some crucial parts that should not be missed or skipped when applying. The loan application can be made online or on paper at the branch of the loan service provider, and these will all depend on the services issued by a service provider.
WHAT ARE THE CRUCIAL ELEMENTS OF A LOAN APPLICATION?
The loan application will need to have identification, financial details, and requests.
The identification part will require identity documents and other personal information, that is when the applicant is an individual. The financial information will be a section that involves information relating to banking information, income, and expenditure of the applicant.
In addition to these, the loan application will also have a section where requests are made. The applicant will mention the loan amount that is required and together with the reasons to apply. In other cases, the client might be required to indicate how they intend to make repayments.
WHAT IS THE USE OF LOAN APPLICATIONS?
Two primary purposes are satisfied with a loan application, and these are to register the intent of obtaining a loan and to provide information for the credit assessment.
Without the application, loan providers would not know who needs funding, and in what amount is that funding required, thus, the application process is of paramount importance. On the other side, credit providers obtain information to perform client assessment and evaluation with details obtained from the loan applications.
Lenders go through a lot of risks when availing their financial resources to the public, and credit risk is one of the significant expenses that threaten the profitability of any commercial credit service. In a bid to curb this, loan providers engage in a loan assessment procedure with their prospective clients, making sure that they remain best clients.
WHAT IS A LOAN ASSESSMENT?
A loan assessment is a procedure or set of activities that are carried by the lender. Selecting clients following their creditworthiness. The assessment procedure is performed as a way of benchmarking or conducting checks on whether they qualify to meet the lending criteria. The lending criteria will be the minimum required conditions that each lender will have on its clients.
This means that a client who fails to meet the minimum requirement or the lending criteria will be unqualified for loan credit. Once the client passes the loan assessment, they will be moved to evaluation or disbursement depending on the stages that the provider will be having.
WHAT IS THE DIFFERENCE BETWEEN LOAN ASSESSMENT AND EVALUATION?
Loan assessment and evaluation perform the same function of plucking out clients who do not meet the minimum requirements, but one of these go a further step. Loan assessment only checks if the clients meet the minimum requirements of the loan provider, and when they do, they will be passed to the next stage.
Loan evaluation will see prospective loan clients being ranked in accordance with their creditworthiness. The evaluation process encompasses loan assessment as to its primary stage of picking out clients with lower credit scores.
WHAT IS THE USE OF LOAN ASSESSMENT?
The assessment procedure is useful to both clients and loan service providers. Firstly, the loan assessment plays an essential role in ensuring that only people who meet the minimum requirements get selected to be clients. This is good for reducing credit risk within the lender’s portfolio, hence maximising profits.
On the side of the clients, loan assessment will ensure that responsible lending prevails within the entity. When loans are issued in the right way, they yield sustainable development within those who use the funds.
Loan Brokerage Institution
In modern business practices, specialists produce quality services and always stay on top of the game in their area of practice. The jack of all trades will have facilities that are below standards, and their knowledge will not be ranked anywhere near specialists.
The same happens to loans, and some firms have a particular focus on researching and providing information about available credit services and loans. The loan brokerage institutions will always possess the best information regarding loan services in any area.
WHAT ARE LOAN BROKERAGE INSTITUTIONS?
A loan brokerage institution is a financial institution which specialises in research of loans, providing loan advises and facilitating loan application with various loan providers. A loan brokerage firm can work as a partner, associate or an independent firm to the providers of loans.
When the institution partners with a lender, there will be a working relationship on which the entity will be paid on all applications that it facilitates to the lender. When a loan broker is an associate, there will be non-controlling shareholding between the brokerage firm and the provider of the loan service. A loan brokerage can also be an independent firm, and here the entity will be operating on its own, having no relationship or shareholding with lenders.
HOW DO LOAN BROKERAGE INSTITUTIONS OPERATE?
The vast number of loan brokerage institutions in South Africa operate as independent entities. They provide information and facilitate the application of loans for a fee, and these independent firms charge fees to the clients rather than the provider of credit services. Usually, these institutions won’t be known by the providers of loans, and they are familiar with clients and other people who have interests in loan services.
SHOULD I ENGAGE A LOAN BROKER OR NOT?
Engaging a loan broker will mean that you do not have enough time and resources to perform research on the loans that you need. If you are a person who has a tight work-schedule, there will be good chances of benefiting from the services of loan brokers. On the other hand, there should be cost-benefit analysis on the services issued by loan brokers as some institutions charge very high fees, which can compromise the gain you obtain.
Rules exist in various ways, but the most important thing is the role they play in binding parties from engaging in unwanted practices. This equally applies to loan clients and moneylenders as they draw terms and conditions that give rise to contractual and constructive responsibilities over the time of service. Loan covenants will stipulate the roles and obligations of each party, and these will be enforceable.
WHAT ARE LOAN COVENANTS?
Loan covenants are terms and conditions of the loan that are usually issued by a loan service provider to bind the client within specified limits. The loan covenants will stipulate interest rates, penalties, service fees and other charges.
The covenants will also include minimum instalment amounts that should be paid on every instalment period. On other scenarios, loan covenants will limit the clients from using the loan on specific activities. When the client breaches these agreements, the loan provider might have to take legal recourse.
WHAT IS THE USE OF LOAN COVENANTS?
Sometimes, humans need some form of enforcement to move in the right direction, and these covenants will be written rules that protect or prevent the client from evading contractual agreements. The loan covenants also ensure a low default rate amongst clients, seeing that there will be consequences when they fail to perform according to the book, the clients will always align their activities to fulfil their agreements.
Loans play an essential role in the regular part of our lives, and these facilities provide credit that allows us to perform transactions, make payments and access some basic services without our funds. When a loan is disbursed, it marks the beginning of responsibility, but the disbursement itself will mean a lot to the client as it grants access to financial resources.
WHAT IS A LOAN DISBURSEMENT?
Loan disbursement is a procedure of creating a loan account and transferring funds to the bank account of a successful loan applicant. The loan disbursement procedure is the final stage that will allow the client to access money from the lender.
Loan disbursement follows after successful assessment, evaluation and approval of the loan amount by the credit team on which the client will be declared successful and fit to perform in accordance with the loan covenants.
WHAT ARE THE COMPONENTS OF LOAN DISBURSEMENT?
A loan disbursement has three essential components, these include the signing of a loan contract, drawing of a loan account and the transfer of funds to the relevant bank account. Without any of these stages, the loan disbursement process will not be complete, and a loan will not be obtained.
The signing of the contract will have the client familiarising with loan covenants and making written agreements to the terms that will be presented within. The creation of the loan account will be done on the relevant credit management or accounting system. From which the entity would be using, and this is where all the debts and payments that will be done by the client would be recorded.
WHAT IS THE DIFFERENCE BETWEEN DISPOSAL AND DISBURSEMENT?
In finance, these two terms mean the exact opposite of each other. Loan disbursement is the giving out of funds while loan disposal is obtaining funds by counter-selling the loan stock. When a loan service provider gives out a loan, they are issued with a paper or commodity, which is a financial asset that shows that they have assets in another firm or individual. Before the maturity of the loan, it can be sold, and this is loan disposal.
All investors seek to make profits through buying and selling financial securities, and this means these investors will acquire or dispose of the business assets depending on their speculation, forecasts and other calculations.
Loans are some of the financial assets that investors use to increase their wealth, through lending money, they gain a lot in interest and service fees. The loans are disposed of when they no longer meet the yields that were expected.
WHAT IS LOAN DISPOSAL?
To an investor, loans, debentures and shares are financial securities, and they are ways on which the investors obtain profits from. Loan disposal is the selling of the loan to another party, and the loan is sold at its market value. This will be the amounts on which the new loan holder will collect from the borrower.
When a loan is sold, it means the borrower or client will make a payment to the new loan-holder. This means that the repayment obligation would have been shifted to an original creditor. The borrower will not be required to pay any additional interest rates or charges, but the lender might gain profit or suffer a loss when disposing of a loan. The concept of loan disposal functions is similar to debt factoring.
WHAT IS THE DIFFERENCE BETWEEN LOAN DISPOSAL AND DEBT FACTORING?
Both loan disposal and debt factoring involve the changing of creditors and no change in the amount of debt owed, but the two have a slight margin. Loan disposal only takes place on marketable financial securities, that is loans that are easily acceptable by buyers, while debt factoring happens on all debts.
Loan disposal can come with profits or losses to the seller depending on the price on which the stock was sold for, while on debt factoring, the creditors will always have loss since they will use part of the loan balance to pay the factoring company.
Loans represent significant assets in the world of finance, and they are one of the most lucrative financial assets that investors can use to increase their wealth. For one to have returns of a loan, they will have to hold a loan stock over the term of the repayment and be able to recoup both the principal amount and interest rates in full.
WHAT IS A LOAN HOLDER?
A loan holder is a provider of loan credit who has current loans or loan in his/her portfolio. To be regarded as a loan holder, a party should have issued funds in return for a paper or security that shows the amounts of funds. Also, the date of maturity of such a loan. The loan holder gets the protection from the loan issuer.
The loan issuer is a debtor or a party that seeks funds by issuing out marketable loan stocks in return of funds that will be repaid in stipulated amounts and period. The most common loan issuer is the government which issues out treasury bills to the public in return for funding.
WHAT IS THE DIFFERENCE BETWEEN A LOAN HOLDER AND A LOAN ISSUER?
These two terms mean precisely the opposite of each other; a loan holder is a lender while a loan issuer is a borrower. A loan that will be referred here is a security, a financial paper that shows the amount, terms and repayment. It is owned and can be presented by any person who holds it to the borrower for compensation.
The loan issuer would be a bank, government or any other institution who would be seeking funds from investors. A loan issuer will be a borrower but will be the one to stimulate the interests and returns on which the loan will be based on.
WHO CAN BE A LOAN HOLDER IN SOUTH AFRICA?
Anyone can be a loan holder of marketable loan securities in South Africa as long as they have the relevant funds to lend. On marketable securities, the loan issuer who will be the borrower will be the one to get registered and monitored by the regulatory authority. On personal loans, only institutions that are registered with the National Credit Regulator are allowed to be commercial lenders.
Every lender has its criteria of selecting clients, some base it on credit scores, some of the current disposable income of the clients and others use all of the approaches. All of these will have to depend on what the lender wants to achieve with the clients. A loan pre-requisites are the best way of selecting clients for an application.
WHAT ARE LOAN PRE-REQUISITES?
Loan pre-requisites are the conditions and documents that are required for clients to be able to make a successful application. The loan pre-requisites are used by the clients on their own, before lodging a form they will read through the requirements and know whether to apply or not.
The pre-requisites will determine who makes an application or not; all the people who fail to meet the pre-requisites will not be able to make successful applications. The loan pre-requisites usually stipulate the conditions on which clients will need to be able to align with the loan covenants without facing hardships.
WHAT ARE THE COMPONENTS OF LOAN PRE-REQUISITES?
Loan pre-requisites will have three major components, and these are income, identification and credit records. The income element will be when the loan service provider stipulates the minimum loan requirements that clients should be earning.
The income element will also stipulate whether the lender needs income from employment or any form of revenue. Even in this part, there is a standard requirement to have the profit banked. The lender will also need to stipulate the documents required to perform both identification and credit assessment on the client.
WHAT IS THE USE OF LOAN PRE-REQUISITES?
Loan pre-requisites perform initial screening for the lenders, making their credit assessment produce a natural activity. This happens as all clients who do not meet the minimum requirements will excuse themselves from engaging with the lender. On the other hand, loan pre-requisites help the client to save their efforts and time as they will already know the exact type and class of people who will qualify for the loan.
Our financial obligations will always remain ours unless we make consistent efforts to repay and clear off the related debts. On some occasions, the debts will be passed to the estate beneficiaries when we pass on, but this can be easily mitigated by the use of a loan protection scheme that will repay for all debts when the untimely tragedy occurs.
WHAT IS A LOAN PROTECTION?
Loan protection is an insurance policy that is used to cover the outstanding balance of a loan when the principal borrower experiences untimed tragedies like the loss of income, disability, or passes on.
The loan protection scheme will repay the lender in full for the debt that the client still owed at the time when payments were halted. The loan protection scheme functions as any other form of insurance, this will involve the paying of premiums during the time of repaying for the loan and claiming when the insured event occurs.
WHAT IS THE ADVANTAGE OF LOAN PROTECTION?
The loan protection scheme plays an essential role in both the lender and the debtor, both parties want to benefit from the loan, but the occurrence of natural events cannot be forecasted or controlled by anyone.
The lender will benefit from a full repayment of their loan, that is escaping default risk and maximising profits from the investment. On the other hand, the borrower will help a lot as their assets, even those declared as collateral will not be attached.
WHAT IS THE DIFFERENCE BETWEEN LOAN PROTECTION AND DEATH COVER?
These two are a form of insurance policies used to cover the loan against default. Their differences arise where and when they are applied. The loan protection is comprehensive insurance on a loan, and it covers a wide variety of risks. They usually trigger loan default; these include death, temporary and permanent injury, disabilities and retrenchments.
On the other hand, a death cover will only ensure the loan balance against the passing on of the principal borrower.
There is more to borrowing than just obtaining the funds from a lender and move around making purchases and payments. Loan repayment is one of the essential obligations that every borrower constructively takes by accepting any loan facility; without refund, the lender will not fulfill the purpose of providing credit.
WHAT IS A LOAN REPAYMENT?
A loan repayment is the course of paying back the financial obligations that have been accepted on taking a loan. The repayment will be made directly or indirectly to the lender. When repayment is done directly, it will be paid through cash to the office of the lender or through the bank to the bank account of the lender.
An indirect repayment is done when the borrower is allowed to make a set-off or trade-in for some products or assets in repaying the loan. A loan repayment is an important course of any loan engagement and it should be honored by the borrower in order to avoid defaults and negative credit scores.
WHAT ARE THE COMPONENTS OF LOAN REPAYMENT?
The loan repayment will involve all the financial values of services. They have to be extended to the borrower by the lender. These will include the principal amount of funds that have been extended as credit, interest charges, service, and other costs that may apply to that lender.
The principal amount is the actual money which was given out as a loan, and interest rates will represent the time value of money. Throughout borrowing and service costs will be there to pay for labor and administrative expenses that are in line with servicing the loan through the term of repayment.
HOW IS LOAN REPAYMENT STRUCTURED?
Loan repayments in South Africa and the world over are structured similarly. All the components of the loan repayment will be repaid from a single amount which will be used to amortize the book value of the loan.
The repayment is usually made in installments that are paid every month, and these funds are directly channeled to the bank account of the lender through the direct debit system. Various lenders might accept other forms of payment like a stop order, cash, trade in, but the direct debit system remains the best as it reduces default risk.
Admittedly, it wouldn’t be right if lenders could give loans to everyone, imagine the mayhem that would be created when these loans have to be repaid, the lenders cannot take such a significant credit risk.
Every lender makes use of loan requirements to select the right type of clients where there are an ability and willingness to make repayments, and this determines how successful the lender will be in his lending activities.
WHAT ARE LOAN REQUIREMENTS?
Loan requirements are conditions, terms, and abilities that prospective and current loan clients should meet as put by the lender. With some lenders, these requirements are sometimes called pre-requisites or application criteria.
The loan requirements serve a great purpose of selecting clients from the public, and it is within the loan requirements that people choose to engage or not to engage with the lender. When a prospective client can meet the loan requirements, they will be having a good chance of accessing a loan.
CONSEQUENCES OF LOAN REQUIREMENTS
All the lenders have their requirements, but crafting proper loan requirements will help lenders in obtaining the right mix of clients for their loan portfolios. All loan requirements that go to the extremes have a terrible impact on both the lender and the client, that is, specifications should not be too strict or too lenient.
Strict requirements will prevent clients from taking credit with the entity, and the company will run into a loss. The clients who engage with such a company will not realize value from the loans. Requirements that have higher levels of tolerance will expose the lender to high credit risk hence fueling irresponsible lending, which has bad impacts on the community.
LOAN REQUIREMENTS AND THE LAW
In South Africa, all registered lenders also have some obligations that they have to satisfy with the laws of credit. The National Credit Regulator, which is the authority that regulates credit services is so strict about responsible lending, and it puts obligation for lenders to collect sufficient information which will allow them to perform and efficient credit assessment.
Various clients have different financial requirements, and these will need a specialized form of funding, one that will make considerations of the purposes on which the funds are intended to be used for. Various loan types are found in South Africa, with many lenders that operate in our market, our people can easily find a service that suits their requirements.
WHAT ARE LOAN TYPES
Loan types are the varieties of credit facilities that are availed with a promise of repaying the principal and interest charges that will be levied by the provider. There are multitudes and various types of loans issued in South Africa.
These might be issued to individuals, companies, or the government itself, but the function remains the same, they serve to provided credit to the parties who experience a shortage of funds. The loans may be classified following the term of repayment, the purpose of the funds or the clients that are targeted.
WHAT ARE THE MAJOR TYPES OF LOANS ISSUED IN SOUTH AFRICA?
In South Africa, personal loans are by far the most common types of loans, and these are loans that are provided to individual borrowers for varying reasons. The personal loans are also re-classified into functions, terms, and length. This reclassification breeds short-term loans, long-term loans, loans for bad credit, instant loans, quick loans, and student loans.
Property finance is also conventional in South Africa; these are loans issued for the purchase or acquisition of fixed properties. In Addition to these, vehicle loans are also standard with people who intend on buying motor vehicles.
WHAT TYPE OF A LOAN SHOULD I CHOOSE?
Before making loan applications, clients should ask themselves for the intended purposes of the funds, and if the money is for financing fees, then educational loans are the best. This goes the same for purchasing a car, financing a business and shopping where vehicle loans, business loans, and shopping loans will suit respectively.
WHY SHOULD I CHOOSE THE RIGHT LOAN TYPE?
Choosing the right type of loan will help both the client and the lender. Firstly, choosing the right kind of investment will align the terms of the loan and activities or ways in which the funds are being used. An educational loan will have repayment terms that suit the late returns that education has, making sure that repayment starts later after the course of study.
This will mean that the client will avoid drowning into defaults at the same time, the lender will escape default risk when the client is served with the right type of a loan.
Long Term Finance
Funding that is fetched for a project or activity should always align with the term of the activity. Also, the project is intended to be financed. Long-term projects usually have yielded returns at a later stage of the projects and so long-term finance will need to be used for such projects.
WHAT IS LONG-TERM FINANCE?
Long-term finance is financial extensions that come with a long repayment period, and the repayment period will have to take more than years for it to be classified as long-term. Loan-term finance can come in the form of credit facilities, loans, shares, property finance, debentures, and other form of assets that provide funding.
The length of the repayment term makes long-term finance riskier, and so the providers of such finance usually use collateral security, which generally curbs the credit risk.
WHAT ARE THE CHARACTERISTICS OF LONG-TERM FINANCE?
There are three common characteristics that of long-term finance; these are low-interest rates, collateral security, and low instalments.
The long-term finance is issued with very low-interest rates due to the use of collateral security, meaning lenders will not mind much about default risk, which will push interest rates lower. Collateral security is used over the long-term of the repayment period to bind the borrower from defaulting the long-term finance.
Long Term Interest
The return of financial assets matches the length or term of such an asset, meaning that short-term securities will have a premium in the form of short-term interest rates.
This means, money market instruments and other related short-term assets will be charged with short interest, while bonds, shares, debentures, and convertible loan stocks yield returns in the form of long-term benefits.
WHAT ARE LONG-TERM INTERESTS?
Long-term interest rates are interest charges that are levied on long-term finance. These are percentage charges that are applied to finance, which is borrowed for a term that exceeds four years. The long-term interests usually are lower than those of smaller short financial assets.
Due to the larger size of long-term finance, the interest charges of long-term investments often accumulate to enormous amounts. Long-term interests are used to pay for the risk that an investor would have exposed their funds and also the time value of money.
WHAT IS THE DIFFERENCE BETWEEN LONG-TERM INTEREST RATES AND INTERESTS?
Interest rates will represent the percentage of charges levied to a client as a percentage of the principal amount that is borrowed by the client over a longer term. The interests will be charges in monetary terms that are derived from these interest rates. The interest charges represent money that is paid by the client, whether the money is substantial or smaller is derived from the materiality of the sum.
Long Term Loan
More extensive and lengthy projects take time to bring yields on an investment which would have been committed, such projects should also be financed with funding that is long-term in nature. Long-term loans are a great way of financing lengthy projects, education, and acquisition of more significant assets.
WHAT IS A LONG-TERM LOAN?
A long-term loan is a credit facility that is repayable with a period that exceeds twelve months on personal loans and five years on secured loans. The long-term loans usually come in large amounts, providing funding for large and lengthy projects that would be expected to bring yields after a long period.
Long-term loans can be availed to both individuals and corporate clients; the individual clients who obtain long-term loans would generally have a good credit history with a combination of high income.
CHARACTERISTICS OF LONG-TERM LOANS?
The determining characteristic of a long-term loan is the term of repayments. The client can be given a repayment period that can go as much as seven years on personal loans, while property loans can go up to twenty years. Long-term loans also come with low-interest rates as compared to short-term loans, and the interest rates would be lower due to the moderate risk of default.
Long-term loans typically come as secured loans, thus vehicle finance, housing loans, property loans, and others. These are the significant characteristics of loan-term loans, and together they usually result in very low installments for the borrower.
SHOULD I TAKE A LONG-TERM OR SHORT-TERM LOAN?
People should consider a lot of things when taking loans, whether to apply for a loan with a more extended repayment or a short-term loan is also part of the considerations. The long-term loans are suitable for educational finance, acquisition of motor vehicles, houses, plants, and other lengthy projects.
These are suitable activities because they are highly valued with returns after a more extended period. Thus the majority might need to acquire these with smaller payments over a more extended period. On the other hand, short-term loans should be used where the required funds are relatively low.
Everyone wants to be served with financial assets that will give low-interest rates, and this happens as interest rates represent the significant expense that borrowers can come across in accessing funding. When interest rates are low, the clients see it as a plus to their value-addition exercise.
WHAT ARE LOW INTEREST RATES?
Interest rates are ranked low or high as a result of comparisons that are made with the interest rates that will be applied by other lenders. Low-interest rates are percentage interest charges that are below the average or those of competitors. A lender who gives funds with low-interest rates will only be said to be cheaper if the prospective costs like initiation, penalties, and service fees are also lower.
Usually, lenders do not want to reduce interest rates as they represent the return on their investments. Also, on the other side, clients do not need higher interest rates as they increase expenses.
WHAT IS THE CONSEQUENCE OF LOW INTEREST RATES?
The lower the interest rates, the lower the interest charges. Low-interest rates will attract many clients for a lender, making their lending business a viable one. However, when low-interest rates are not kept with the right mix of other services, they will drag the lender to an unrecoverable loss.
DOES LOW INTEREST RATES MEAN LOW CHARGES?
Interest rates and charges usually have a positive correlation; however, the relationship does not always exist in such a way with other lenders. Some lenders levy low-interest rates but initiation fees, service fees, and penalties will be substantially high.
The cost of a loan is constituted of interest rates, initiation fees, and service fees, which means when one of these is high, the client will not access cheap financial services.
Low Interest Charges
WHAT ARE LOW INTEREST CHARGES?
Low-interest charges are the resultant fees that clients pay due to low-interest rates. The interest charges are actual amounts that the client pays for using funds or credit services of the lender. Typically, low-interest fees come with financial assets or credit facilities that have low risk due to collateral security.
Low-interest charges might also be a result of the term of the loan when the credit facility is issued over a short period.The interest charges will be lower. Similar to interest rates, interest charges are said to be lower high in comparison to other lenders, time or the average interest charges in the whole sector.
WHAT IS THE DIFFERENCE BETWEEN INTEREST CHARGES AND INTEREST RATES?
The interest charge is the actual monetary figures that paid by the client for using credit facilities while interest rates are the percentage expression of interest charges to principal amounts over a specified period.
Interest rates show the relationship between the amount of money that is obtained to the expenses that will be paid. On the other hand, interest charges are just monetary figures, and they do not compare the costs to the number of funds that were accessed.
Capital McGee Ltd is an investment firm that provides loans to companies. Short-term loans provided by the firm come with maximum amounts of R200 000 with interest rates of 7% and 5% per annum and two years respectively.
This means that a client who takes a loan for a year will pay R14 000 and the two-year client will pay R20 000 for interest charges. The percentages are the interest rates, and the actual amounts paid are the interest charges. Over the long term, low interest rates can accumulate to higher interest charges as compared to higher prices over short periods.
Think about the financial burden that is brought about with instalments that are higher and unaffordable, the likelihood of default and financial strains. Many people in South Africa now opt to re-finance their debts with loans that have lower instalments as a way of relieving pressure on their monthly budgets.
WHAT ARE LOWER INSTALMENTS?
Lower instalments are smaller divisions of payments that are made on a periodical basis to service debt, financial obligations, or loan repayments. The instalments will be referred to as lower in comparison to other instalments for similar services offered in the market. Instalments of varying services cannot be compared as the clients will be exposed to different benefits.
Thus to compare instalments, the client will need to use percentages to express the repayment over the total amount of debt or financial obligation that they will be servicing.
WHAT IS THE IMPLICATION OF LOW INSTALLMENTS?
The size of instalments has a negative correlation with the term of repayment, which means when clients choose low instalments. They should be prepared to make payments over a more extended period. On the other side, higher instalments will quickly clear out the required loan or credit facility balance.
Also, service providers and lenders charge clients with service fees, and these are charges that are levied every month. Also, on every occasion that an instalment has to be paid. If one chooses low instalments, their term will be longer, and the service fees will accumulate to large sums of money.
SHOULD I CHOOSE LOWER OR HIGHER INSTALLMENTS?
There are two essential things that borrowers and clients should consider before choosing the size of an instalment. An instalment should be a balance between the ability and benefits of making a quick repayment on a credit service. The strength of a client to make large instalments rests in the amount of disposable income the client has, when there are more funds, higher instalments can be taken. At any moment, clients should not take instalments that will leave them with minimal funds as money will always be needed for convenience.
Instalments should also be based on the function and nature of returns that are obtained from the financed activity. If the returns are quick and higher, higher instalments should be chosen, and when profits are a bit delayed, lower instalments will be high.
Sometimes it is not worth it to make loan repayments over a longer term when there is an ability to quickly set it off and take advantage of credit scores, reduced costs and good working history with the lender. On various scenarios, South Africans are given smaller loans that have extended repayment periods with an option of making maximum repayments and quickly shed-off the loan obligation
WHAT ARE MAXIMUM REPAYMENTS
Maximum repayments are the most significant amount of instalments that the client can make in paying for a loan or credit that was once extended to them. Maximum repayments can be put by the lender, but on most scenarios, it is the clients’ ability that determines how much they can pay.
Most lenders dislike having their funds being exposed to credit risk, and so they will encourage them to make maximum repayments to have a quick return at the same time reducing default risk.
WHAT ARE THE CONSEQUENCES OF MAXIMUM REPAYMENTS?
Maximum repayments have significant implications for both the client and the lender who provided loans or credit services. To the client, making large instalments will allow them to reduce the costs that are associated with servicing a loan, that is service fees will be significantly reduced.
Maximum repayments will also benefit the client with an improved credit rating, and more credit scores will be gained. When the loan gets cleared within the shortest possible time. On the other hand, the lender will benefit with quick returns and reduced default risk on his loan portfolio.
SHOULD I MAKE MAXIMUM REPAYMENTS OR NOT?
Choosing the size of your instalment should be based on two things; these are the ability to make maximum repayments and the benefit that is obtained from doing so. Clients can also take consideration of the type of loan purchased and the value derived from using such a loan.
Your ability to make maximum repayments wholly lays in the amount of disposable income you have. When you have more funds outside your budget, maximum repayments are the right way of repaying a debt. In some scenarios, when the funds that were obtained from a loan can make quick returns, maximum refunds will also be advantageous.
Lending and borrowing of financial resources occur in South Africa daily, every second, at least one person is pondering or planning on borrowing funds to sustain their budget. Most people take smaller loans to cover shortages presented by accidents and other unplanned events and so micro-credit plays an essential role for such people.
WHAT IS MICROCREDIT?
Micro-credit is the term that refers to the activities of registered lending of financial resources to individual clients. This lending will be done on small scale financial credits. Micro-credit is one of the significant components of microfinance practice, and it is practised by almost all micro-finance companies, banking institutions and other investment firms.
The funds which are provided under the micro-credit schemes will have smaller amounts that are meant to aid individual clients in their endeavours. Micro-credit does not include business loans, large personal loans and loans make to other institutions.
WHAT IS THE DIFFERENCE BETWEEN MICRO-CREDIT AND MICRO-FINANCE?
Micro-credit solely constitutes the lending of smaller loan amounts to individual clients, and it’s a component of microfinance practice. On the other hand, microfinance encompasses credit, money transfer, savings, financial education to clients who are underprivileged, remote or those with low incomes. The microfinance clients can be both individuals, sole traders and other small business entities.
WHAT IS THE SIGNIFICANCE OF MICRO-CREDIT?
We all do not know when the next tragedy is going to happen and who will experience a tough situation that will need funding. Microcredit plays an essential role in releasing quick financial credit with low requirements as compared to other substantial commercial loans.
With this, micro-credit allows a vast number of South Africans to escape the severe consequences that emergencies might bring about in their lives.
WHAT SIZE OF A LOAN IS FALLS UNDER MICROCREDIT?
The amount of credit or loan that is extended by firms in the micro-credit area is what differentiates microcredit from other forms of credit services like credit cards and personal loans in South Africa.
In South Africa, micro-credit takes place with loan amounts that range from as little as R400 to a maximum of R8 000, these loans normally come with a repayment period that does not exceed six months.
Micro Credit Provider
South Africa leads the rest of African countries with the number of entities that provide financial credit to individuals. Similar to personal loans, credit cards and instant loans, microcredit providers have been increasing, making sure that every South African who has some form of banked income can access funds to cover their short-term shortages.
WHO ARE MICROCREDIT PROVIDERS?
Microcredit providers are institutions, sole traders and other organisations that are registered with the National Credit Regulator at the same time holding licences to issue commercial credit services.
These organisations will be issuing smaller credit facilities that are below the amount of R8 000, and these amounts will be repaid in a short period of times. Microcredit providers work to meet the financial requirements of citizens by availing smaller loans that are meant to cover immediate expenses and other things that need urgency.
WHO ARE THE TARGET CLIENTS OF MICROCREDIT PROVIDERS?
Microcredit providers work closely with microfinance institutions; on numerous occasions, it will be a microfinance institution that will be providing microcredit services.
These providers offer their services to less privileged clients, those in remote areas, the low income or previously marginalised groups. In doing this, microcredit providers facilitate the implementation of financial inclusion throughout the nation.
Entities and individuals sometimes run out of the required working capital or cash to sustain their short-term needs, but micro-extensions will be there to aid them in getting over such situations. Let’s look at it in this way, every day we need money or some form of liquid financial resources to access our daily supplies, when there isn’t enough for the regular supplies we can take advantage of micro-extensions.
WHAT ARE MICRO-EXTENSIONS?
Micro-extensions are small credit that is extended to clients or borrowers to allow them in meeting their daily requirements or sustaining their working capital requirements. Micro-extensions come in the form of loans, credit cards and other low-valued purchases that are made in credit.
The critical factor of micro-extensions is that they allow large machines, assets and other resources to function well by providing the smaller amount of consumables that will be required to get activities or projects going. Micro-extension credit can be extended to both individuals and smaller entities, as a way of allowing them a smooth passage through tough times.
WHAT IS THE difference BETWEEN MICRO-EXTENSIONS AND MICRO-CREDIT?
Micro-extension is the extension of credit services on a small scale to both individuals and small business entities, while micro-credit is the provision of smaller loans to individual clients. The difference between these two signs come upon the type of clients and services, but both involve the use of low valued credit. Micro-extension cover loans, credit cards, instant loans and purchase of goods on credit whist micro-credit cover loans only.
WHO DOES MICRO-EXTENSION IN SOUTH AFRICA?
For a company or organisation to do micro-extension of credit, they will have to be registered with the National Credit Regulator at the same time holding a valid licence.
There is a vast number of institutions that provide small credit extension, the most common ones are banking institutions. In addition to these, there are shops like Ok Furniture, Game and Home-Choice which are also very common in providing micro-extensions.
It is not everyone who have an ability to borrow millions from the banking system and engage into large scale projects, for the majority borrowing amounts that are above a R100 000 is a risky expedition which they will never try. Micro-finance addresses financial services at a smaller scale as compared to those of banks, basically to low income groups and underprivileged communities.
WHAT IS MICRO-FINANCE?
Micro-finance is the provision of financial services on a smaller scale to underprivileged communities and low income groups. The microfinance services mainly involve micro-credit, money transfer, financial education, savings and financial consultancy to small businesses and individuals. There is a difference between microfinance and micro-credit as microcredit is a component of microfinance.
The activities that are covered by the term microfinance also exclude the provision of financial services like banking and accounting, even on their smallest scale. The area of microfinance is the primary provider of financial services to small businesses, informal traders, low income groups and sole traders.
WHAT IS THE PURPOSE OF MICRO-FINANCE?
The purpose of microfinance is to spread financial services to all parts of the economy, making sure that all the people are covered and given the ability to do their activities at recordable levels.
The microfinance services do groundwork for banking and accounting institutions making sure that the microfinance clients keep some form of records and upload formality on their daily activities. This act of encompassing the informal, unbanked and low income groups is normally referred to as financial inclusion.
WHAT IS THE DIFFERENCE BETWEEN MICRO-FINANCE AND MICRO-CREDIT?
The two terms are sometimes used interchangeable, normally because a company or institution that provides micro-finance services also provides micro-credit services. Micro-finance is an umbrella term to financial services that include micro-credit, the other services could be money transfer, savings, financial education and consultancy.
Meanwhile, microcredit is only the provision of smaller financial credit services and that mainly involve lending. Payday loans, quick loans, short-term loans, personal loans and other smaller credit services are all classified under micro-credit.
WHO PROVIDES MICROFINANCE SERVICES IN SOUTH AFRICA?
The National Credit Act led to the creation of an independent organisation which is called the National Credit Regulator (NCR). This is the board and authority which oversees and facilitates the provisions of the National Credit Act. The mandate of the NCR is mainly to register, deregister, issue licences, renew license, cancel licences, issue new and revise old interest rates among other related issues. All the provisions of the National Credit Act are primarily addressed and facilitated by the National Credit regulator.
The National credit regulator is allowed to seek enforcement from relevant forces in events when a credit service provider does not want to comply with the provisions of the National Credit Act.
WHERE CAN WE OBTAIN THE NATIONAL CREDIT ACT?
In South Africa, there is a smaller margin between micro-finance companies and micro-credit companies, this is due to the fact that almost all micro-finance companies take micro-credit as their major income generating activity.
Micro-finance companies have to comply with the FICA and NCR requirements, when they want to provide other services like consulting and money transfer, there will be a need to make additional registration for these services separately.
In credit services, everyone has a place where they can fit depending on the amount of wealth that they can avail as capital. The vast number of lenders manage to venture into micro-lending where there isn’t much capital requirement as smaller amounts can be tuned to bring quick turnover.
WHAT ARE MICRO-LENDERS?
Micro-lenders are the providers of financial credit in the area of micro-credit. Micro-lenders can be referred to as the lenders of microcredit clients. They work to provide individual clients with smaller financial loans that do not exceed R8 000 with a repayment of up to 6 months.
Micro-lenders give out financial credit in the form of loans only, and they give out funds in smaller amounts over a short period. It is allowing them to make quick returns on investments that have low default risk. Micro-lenders are the same institutions that practice micro-credit.
WHAT DIFFERENTIATE MICRO-LENDERS AND MICROCREDIT?
These two are a highly related term, and without the other, one will not exist, just like the borrower and the lender. Microcredit is the activities of providing smaller loans to individual clients on a commercial basis, and the providers of such investments are the ones who are known as micro-lenders.
Micro Lending Industry
In South Africa, most lenders prefer doing it smaller and reducing the credit risk, making sure that they quickly reap returns from their capital injections. This is has led to the massive growth of firms that are active in the micro-credit lending industry.
Over the years, more and more companies have been registered with the National Credit Regulator to provide smaller loans to individuals.
WHAT DOES MICRO-LENDING INDUSTRY CONSTITUTE OF?
Micro-lending industry, which is also known as the micro-credit sector, is the area of finance that deals with the provision of smaller loans to individual clients. These loans would be those which fall within the limit of R8 000 with repayment periods that do not exceed six months.
The majority of participants in the micro-lending industry are institutions that practice microfinance, and these entities provide a wide range of service for both individual and corporate clients. Micro-lending industry occupies larger space of credit services that are issued in South Africa and so it plays much importance in bailing out citizens from financial tragedies.
WHAT IS THE SIGNIFICANCE OF MICRO-LENDING INDUSTRY?
The micro-lending industry serves the purpose of availing short-term funds to people who will be lacking financial resources to perform their various needs. The services of micro-lending institutions have low pre-requisites for prospective applicants hence making them easily accessible to a large number of people.
On the other hand, micro-lending facilitates the much needed financial inclusion, and this happens as more people from low-income groups also get served with financial resources allowing them to contribute to national development with the others.
Life exposes us to various situations, some bring unexpected benefits, but when the outcome becomes negative, we suffer financially. Financial shortages that we usually face are those that need smaller amounts of funds, but the significance these would be great and failing to access such funds might expose us to much more significant losses.
WHAT ARE MICRO-LOANS?
Micro-loans are smaller financial credits that are extended to individual and business clients who make a promise to repay in specified amounts and dates.
Micro-loans are issued as commercial credit services, and this means that on all situations that individuals obtain these loans, there will need to repay the principal loan together with the interest and service fees that would have been levied by the relevant lender. Micro-loans come in the form of short-term credit extensions which means they come with a short repayment period.
WHAT SEPARATES MICRO-LOANS FROM PERSONAL LOANS?
Micro-loans are smaller in amounts, and they are issued to both individual and smaller business entities over a short-term period. On the other hand, personal loans cover smaller, medium and large loans that are given to individual clients. With personal loans, people can cover their expenses or use the credits in purchasing assets, depending on their needs. When one obtains a micro-loan, it will only help in covering immediate costs, and this is due to its smaller size.
SHOULD I APPLY FOR A MICRO LOAN OR PERSONAL LOAN?
The intended purpose, repayment abilities and credit scores of the applicant will determine the right type of a loan suitable. A micro-loan is appropriate when the funds that are needed are smaller in amounts, that should also be backed but the urgent needs of the funds. Individuals should also consider the shorter repayment periods that micro-loans will expose them to, that means these loans are suitable when there is a form of income that can make payments in the shortest possible time.
We all need cheap services; it is part of our instincts as human beings to avoid costs, vying for the best quality services at the minimum possible charges. Minimal rates are what service providers use to lure clients and maximise their revenues through the number of clients who will opt for their services.
WHAT ARE MINIMAL RATES?
Minimal rates are smaller charges that clients get exposed to whenever they access services. The prices will be called minimal is they can allow a client to access services at cheaper costs from the referred service provider.
Minimal rates will allow the client to access quality services at the lowest charges in the market, meaning that the costs of such a service will be below their market value. When the quality or quantity of the services referred to is reduced or compromised, the lower rates become the market value. Such services and they cannot be related to as minimum standards.
HOW TO ACCESS SERVICES WITH MINIMAL RATES?
They say knowledge is power, without it decisions and choices will be compromised. For clients to access minimal rates, they will need to know all firms that issue a particular type of services in the required area. When this is done, a good comparison of prices can be made based on the volume and quality of the services that will be obtained from such a service provider. With these, one can arrive at minimal rates.
Installments are the best way of offloading a significant consideration on high valued goods and services. Little by little, they allow us to pay vast sums of money. Within these installments, there are classes and sizes which will determine the cost and length of the installment that you will be charged with, all these should be considered by clients who opt for installment payment.
WHAT ARE MONTHLY INSTALLMENTS?
Monthly installments are equal payments that are made at the end or beginning of a period of thirty days or four weeks. Monthly installments are the most common type of installments that are used to pay for goods that are bought on credit.Also, insurances, loans, school fees, and other related expenses.
Monthly installments can be done effectively in two ways, that is through the direct debit system or the stop order payment. These two automatically link the bank account of the debtor and the creditor for the transfer of a fixed amount over a specified period, making it almost uneasy for defaults.
WHY MONTHLY INSTALLMENTS?
The majority of people who are formally employed where they earn regular income receive salaries after the end of every month. Banks make it easier for these people to honor their obligations by facilitating payment at the time when the employee or client receives funds, making sure that funds are transferred from the bank account of the client at every month-end.
WHAT ARE THE CONSEQUENCE OF INSTALLMENT PAYMENTS?
Installment payments can bring both positive and negative consequences to both parties involved in a payment deal. Installments delay payment to the supplier of goods and services at the same time exposing them to credit risk and opportunity cost of using financial resources.
On the other hand, installments might mean that a person will have an increased ability to purchase goods or services which would be expensive to pay in cash. The same person might get exposed to interest and service fees, which are usually levied by the service provider. These would have been avoided when payments were made in cash.
NATIONAL CREDIT ACT
We see it on a daily basis that laws play an important role in keeping the peace, promoting justice and defining human actions, preventing us from engaging in bad practices. In every area or activity that humans engage in there are laws which determine how things should be done, the same is the issue in the provision of credit services in South Africa.
WHAT IS THE NATIONAL CREDIT ACT?
The National Credit Act is a bill which was passed by the parliament of South Africa in 2005 to become a supreme law for credit services provided in South Africa. It provides guidelines and parameters for credit services providers, defining how their services should be done to meet the cornerstone of good credit provision.
The act is the supreme law which binds all banks, microfinance institutions, microcredit institutions and other providers of financial credit services in South Africa. The provisions of the National Credit Act are enforceable and individuals who are found to be guilty in violating the provisions could face jail sentences.
WHAT ARE THE AREAS ADDRESSED BY THE NATIONAL CREDIT ACT?
The National Credit Act seeks to improve the provision of credit services in South Africa through providing rules that will pave the way for fair, responsible, transparent, sustainable and effective credit provisions. This was done through pegging of maximum interest charges for various loan types, making client assessment an obligation for lenders, revising terms of credit services, registering and deregistering of credit services providers.
The National Credit Act also provide for the roles of the National Credit Regulator, finance minister and the reserve bank in ensuring that credit services are issued in the right way.
The refinancing engagement can be done with the initial lender; in that way it will be just drawing a new loan agreement. When refinancing is done with a different lender, there will be no need for the initial lender to know where and how the debtor/ borrower sourced the money to make the repayment.
WHO IS SUPPOSED TO OBLIGE THE NATIONAL CREDIT ACT?
The National Credit Act is a public law which is useful and determinant to the way credit services are done in South Africa. Amongst the citizens, those who are engaged in the provision of credit services should make sure that their activities comply with all sections of the National Credit Act. The main implication is on banks, microfinance institutions, microcredit firms and other traders who sell their products and services on credit.
Their operations should comply with the act on interest rates, credit assessments of the customers and fairness of the covenants on which they get to put their clients through. Generally, the clients are not much affected by the act, the main aid to them is to know their rights and be able to detect a bad practice when they are exposed to it.
WHO ENFORCES THE NATIONAL CREDIT ACT?
The National Credit Act led to the creation of an independent organisation which is called the National Credit Regulator (NCR). This is the board and authority which oversees and facilitates the provisions of the National Credit Act. The mandate of the NCR is mainly to register, deregister, issue licences, renew license, cancel licences, issue new and revise old interest rates among other related issues. All the provisions of the National Credit Act are primarily addressed and facilitated by the National Credit regulator.
The National credit regulator is allowed to seek enforcement from relevant forces in events when a credit service provider does not want to comply with the provisions of the National Credit Act.
WHERE CAN WE OBTAIN THE NATIONAL CREDIT ACT?
Generally, the National Credit Act is available on many platforms, as a public document there are several online platforms that will allow stakeholders to download the act.
The primary distributors of the National Credit Act are the National Credit regulator, the South African government and its departments. With these, stakeholders can obtain a soft or hard copy of the act and get informed with the laws relevant to credit services in the country.
National Credit Regulator
Laws are essential for the control and regulation of activities that we undertake in our communities, but for these laws to be observed, there needs to be some form of enforcement. This goes the same with commercial lending and borrowing activities in South Africa. The National Credit Regulator is the arm of the South African government that works to regulate and enforce credit laws.
WHAT IS THE NATIONAL CREDIT REGULATOR?
The National Credit Regulator is an authority or regulatory organization that was formed with a mandate of enforcing, regulating, and making other relevant provisions for credit services that are issued to individual clients in South Africa.
The National Credit Regulator works in line with the provisions of the National Credit Act (NCA) of 2005 to cover loan services, credit cards, credit sale of goods and services that are done within South Africa. All the providers of credit services should be registered with the organization before obtaining a license for providing credit services on an annual basis.
HOW DOES THE NATIONAL CREDIT REGULATOR WORK?
Just like other authorities, the National Credit Regulator is the arm of the government that was formed when the NCA bill was passed in 2005. The regulator has minimum requirements that it puts for all companies that need to provide credit services in South Africa. When the company meets these, it gets registered and gets a license which will be valid for a year.
The license can be canceled or renewed when the issued provider falls below standard or meet the criteria, respectively. The National Credit Regulator also revise interest rates on all personal credit services, making sure that credit consumers are protected.
WHO IS CONTROLLED BY THE NATIONAL CREDIT REGULATOR?
All entities and business organizations that provide commercial credit services should be registered with the National Credit Regulator, and at all times, they should hold valid licenses to offer these services. The National Credit Regulator controls banking institutions, shops that sell on credit, financial institutions that provide credit services, and sole traders that are registered lenders.
National Finance Regulation
The finance sector is one of the critical areas that a country needs to stabilize to foster economic development and industrial growth, to maintain the industry a country should be able to put consistent, fair and effective finance regulations.
These finance regulations will determine how much a country obtains in Foreign Direct Investment (FDI), domestic investment, and growth on the Gross Domestic Product (GDP).
WHAT ARE NATIONAL FINANCE REGULATIONS?
National finance regulations are the laws that are passed by a country as a jurisdiction to govern financial activities that will take place within such a country. Usually, financial regulations will come with specific areas where each act will be drafted to address, and these sectors could be banking, insurance, credit services, money transfer and other areas that are related to finance.
A national finance regulation will impact the activities of all parties that undertake activities in an area that will be regulated, that include individuals, companies, and government entities.
WHAT IS THE SIGNIFICANCE OF NATIONAL FINANCE REGULATIONS?
When a law is passed, its ultimate use is to protect the public. A lawyer might prevent someone from engaging in activities that will be deemed to be wrong to protect the exact individual who wanted to participate in such an action.
The national finance regulations are there to improve fairness, harness economic development, and facilitate sustainable development at the sometimes protecting citizens who have low bargaining power.
WHICH NATIONAL FINANCE REGULATIONS DOES SOUTH AFRICA USE?
South Africa is one of the countries which have a very high number of financial services providers, and the increase in the number of participants means a variety of services, these various services will need to be controlled by many laws.
The most common finance law in South Africa are those that deal with commercial lending services; these are found in the National Credit Act. In addition to this, the Finance Intelligence Centre Act, the Reserve Bank Act, and the Public Finance Act cordially work to regulate financial activities within South Africa.
Debts are some of the financial obligations that can emotionally bring a person down at the same time exerting pressure on the monthly budgets of the borrower. The state of being over-indebted is more critical than what lenders perceive it to be, and this is why everyone should avoid drowning into such a situation.
WHAT IS OVER-INDEBTEDNESS
Over-indebtedness is the state of being in debts that are due for payment but having few financial resources to make such a payment. When a party is over-indebted, they may fall into two classes.
The first scenario has financial resources that are insufficient to pay for the debt. Also, the other one has financial resources that are enough to pay for the debt, but when such a payment is made, the borrower will be left stranded. Both of these scenarios will cause an individual to have emotional stress and strain due to the debts obligations.
WHAT CAUSES OVER-INDEBTEDNESS?
Three things can cause over-indebtedness; these are the occurrence of unplanned events, uncalculated borrowing, and financial indiscipline. When unforeseen circumstances occur, they can push a person to spend funds that were meant to pay debts and to have nothing to cover these debts at the end of a period. People can also make honest mistakes through borrowing, not knowing the consequences of such lending, and this could also cause over-indebtedness.
People with financial indiscipline will ultimately find themselves being over-indebted, these are the people who think they should have everything. They will borrow funds to get anything they want, including things that do not add value. This behavior will lead to a state of being over-indebted.
HOW TO AVOID OVER-INDEBTEDNESS?
The best way of avoiding the situation of being over-indebtedness is by preventing the causes of it. Borrowing should be done after making proper considerations of the benefits and disadvantages of it at the same time matching your abilities to the repayment obligations. At all times, people should know that debt is not a solution for another debt, it’s like digging a pit to fill another hole.
Our capacities for everything are limited, be it your financial ability, work, or another activity that we usually do have a level where we cannot go beyond. In South Africa, most of the people get overburdened with debts and other financial obligations, a situation which results in emotional unrest.
WHAT DOES IT MEAN TO BE OVERBURDENED?
Being overburdened is a state of carrying excessive loads on the activity that would be referred to. When one becomes overburdened, they will be taking loads that are above their carrying capacity.
The load could be carried, but it would be cumbersome and having negative impacts on the party, which would be over-burdened. For a person or anything to be referred to as being overburdened. They would have exceeded the capacity, and the capacity is the ability to perform an activity without having complications.
HOW DOES A PERSON BECOME FINANCIALLY OVERBURDENED?
An individual becomes financially overburdened when they carry financial obligations that exceed their income capacity. Typically, a person who is in a situation of over-indebtedness will be financially overburdened due to the piling debts that will be requiring payments. The financial burden can result due to the occurrence of accidents, unplanned expenditures, and financial indiscipline.
Almost all the people who have been formally employed would at some point receive money. A document that shows their earnings from employment and the relevant deductions for the period of payment that will be under concern. Pay slips are essential documents for all employees, and they perform a significant role as a reference on various occasions.
WHAT IS A PAY SLIP?
A pay slip is a document that shows the financial remunerations an employee from employment throughout payment. That is when employees are paid every month, and their pay slips will be compiled for the two weeks that they have been employed.
A pay slip show salaries and wages that have been paid by the employer, and so debts and prepayments will not be included in the pay slip. A pay slip is sometimes referred to as a salary slip.
WHAT ARE THE COMPONENTS OF A PAY SLIP?
A pay-slip works similarly to a bank statement, but it will only be showing the amounts that are relevant to employment. A pay slip will need to show the gross earnings of the employee, statutory deductions, and other deductions before giving the net amount that the employee receives.
The gross earnings will include salary and wages that have been earned in the period under reference. This is usually a month, and these amounts would be in their primary forms without any deductions. Statutory deductions will follow, these are taxes and pension deductions which are prioritized to other deductions.
WHAT IS THE PURPOSE OF A PAY SLIP?
A payslip serves two significant purposes, that is as a reference and a source document for information that will be required by stakeholders. Credit service providers, banks, tax authorities, and other entities may require the pay slip on various occasions before the employee can access services from these organisations.
Pension Backed Housing
Housing is one of the essential needs of every South African, despite having wealth or not everyone needs to have a place of their own to reside at. On the other hand, these houses are not affordable to the majority of citizens; that is why banks provide payment plans for the people to afford a house.
WHAT IS A PENSION BACKED HOUSING PLAN?
A pension backed housing plan is a loan facility that is meant to aid a permanent worker of an organisation to buy a house, with that loan being secured by the pension of the employee. The housing loan will take place just like any other loan, but the house but the pension fund will not secure it.
Pension backed housing loans are generally given to elderly employees who would have accumulated substantial sums of money on their pension schemes, and part of these funds will be used to pay for the housing loan balance if the client fails to clear the loan during the term of employment.
WHAT HAPPENS WHEN ONE DEFAULT A PENSION BACKED HOUSING LOAN?
Default on pension backed loans usually takes place due to death, permanent injury, retirement, or sickness of the employee. The house which the employee would have got through the loan will not be affected in any way.
The financier will take part in the pension fund to cover the balance of the loan on the house, and the employee will receive the remaining pension in monthly payments after retirement. Where the borrower would have passed out, the beneficiaries who would typically be the spouse or children will receive the remaining amount of pension benefits in monthly payments.
WHAT IS THE BENEFIT OF PENSION BACKED HOUSING?
Usually, people fail to buy houses in cash during the term of employment, sometimes there will be a lot of complications in accumulating money in the form of savings, but the pension contributions can be used to purchase a house.
The plan will allow the worker to live in a house over the term of employment, knowing that the home will not be repossessed as the financier will be repaid with the pension fund. The employee will still get part of their pension if they retire before finishing loan repayment as some contributions would have been made during employment.
Personal Income Loan
Loans play an essential role in our lives, and they help us to get over tough situations that would need to be funded, without loans, many of us could have sunk in several tragedies. However, taking a loan should also be done responsibly, getting a personal income loan will aid the borrower to escape loan defaults.
WHAT IS A PERSONAL INCOME LOAN?
A personal income loan is a loan that is given to individual customers basing on their own income. The loan does not take much consideration of credit scores. The credit analysis is done with the internal staff, where they will measure the ability of the client to make repayments through the study of personal income.
Personal income loans come in the form of personal loans, business start-up loans, short-term loans, and other credit facilities. Personal income loans usually come as unsecured and in smaller amounts that would be deemed easily repayable by clients from their personal income.
WHAT SORT OF INCOME DO THESE LOANS COVER?
A personal income loan will be based on income from formalised activities; at the same time, the income should always be received through a bank account. A personal income loan is generally based on employment income, business income, or corporate remunerations where the person in a director.
Salaries and wages that are regularly received will be the employment income on which the lenders would consider, while business income will come from business ventures like partnerships, sole traders, associates, and professional practitioners.
Modern financiers have advanced their lending practices by improving their services with responsible lending, making sure that clients received financial services that will enhance their present and future without negative consequences.
WHAT IS PROGRESSIVE LENDING?
Progressive lending is the provision of credit facilities in a sustainable way. Incremental loan includes the provision of credit services in a cheap, reliable, and responsible way, making sure that there are no negative consequences to the consumers of the products.
Progressive finance covers all forms of credit facilities, and these could be loans, credit cards, educational loans, housing loans or loans for bad credit, all of these can be under the umbrella of progressive finance when they are issued in the right way.
HOW DOES PROGRESSIVE LENDING TAKE PLACE?
The practice starts on the design of credit facilities; the products should be affordable with reasonable terms that does not lock the participants in tight covenants. On the credit assessment stage, only clients who have repayment ability are chosen from the list of applicants. Also, their strength is enhanced with financial advice to enable them to maximise the use of the funds.
The main goal of progressive lending will be to bring benefits to both the lender and the borrower at the same time preserving their future. This is achieved by checking the future impact of these credit facilities. That is on repayment or after the repayment period.
Our country needs to be developed, the infrastructure and roads need to be maintained while hospitals, educational institutions, and other public organisations need to be well staffed and equipped so that the citizens can be helped in various ways. The public sector is essential in ensuring that all these sections of our economy function well.
WHAT IS THE PUBLIC SECTOR?
The public sector is the section of the government that oversees, regulates, and run public organisations in the country. These public organisations include authorities, commissions, regulatory boards, public universities, hospitals, and parastatals.
These public sector institutions will help ordinary citizens in accessing basic needs like health, education, shelter, food, and transport. The facilities provided by entities that fall within the public sector category are called public amenities. They help people and companies in all sectors to carry their activities efficiently.
WHO CONTROLS THE PUBLIC SECTOR?
For every area of the public sector, the government assigns a board, minister, principal, or any other public official to oversee the activities of a public institution. The management and top officials of any public institution would generally be the citizens who have no criminal records, coupled with proven ability to lead in areas of national interest for the benefit of all citizens.
All the public sector institutions will fall under a particular ministry, and this is where all rules and regulations of governing the public entities will be discussed from before being tabled as a bill in the parliament.
WHAT HAPPENS WHEN THE PUBLIC SECTOR FAILS?
A small problem that happens in any area of the public sector will have magnified impacts on the livelihood of multitudes of people at the national level. Everyone, whether rich or poor use the services of the public sector, everyone will use the same road, drink the same water, and consume electricity from the same plants.
When the public sector fails, it triggers a fast economic collapse and immediate crisis to all the citizens. The impacts of a failed public sector system might not affect everyone directly, but everyone will be affected by the counter-effects.
Quarterly Budget Boosters
Due to various economic hardships that most citizens experience, their incomes fluctuate. Sometimes there might be a lot of funds that are received, but sometimes we will face difficulties in meeting basic requirements, and these are the fluctuations that can be addressed by budget boosters.
WHAT IS A QUARTERLY BUDGET BOOSTER?
A quarterly budget booster is a financial extension that gives a client, employee, partner, or stakeholder an ability to improve their financial condition. A budget booster will be provided by a lending institution after three months as an addition an additional loan at a low or no cost, with the receiving party making a promise to repay.
A budget booster might also be provided as a reward or token of appreciation to an existing client or stakeholder, in this way it will not have any covenants of repayment but might have some terms attached to it.
WHAT IS THE USE OF QUARTERLY BUDGET BOOSTERS?
The budget booster will help a service provider or any party that needs to motivate its partners or maintain a good working relationship. The main issue is that most partners, workers, and stakeholders value financial rewards better than anything else that would be available at an organisation and where they get these benefits, they will put maximum efforts. Quarterly budget boosters will allow anyone to rejuvenate the level of motivation on their stakeholders.
Lending is like farming where you seed, manage your crops to get a harvest, but this will all depend on what you saw, and you managed it. In providing funding, investors put their funds as a credit facility to people who require this funding, and they will reap profits in terms of interest, initiation, and service charges.
WHAT IS TO REAP PROFITS?
Reaping profits is the term that is used when a business, service provider, or any institution manages to obtain returns and gains from projects or activities that it undertakes. To reap profits, there are a lot of things that need to be done in the right way as there is a slim margin between the acts that expose a business to lose and those that bring gains.
Reaping profits is a result of quality services, minimal operational costs, strategic timing of competitors maximising on their weaknesses and grasping opportunities that the business environment brings.
WHAT IS THE DIFFERENCE BETWEEN REAPING PROFITS AND PROFITEERING?
Reaping profits is generally accepted by the community as a humane and ethical practice of carrying business activities. On the other hand, profiteering is an inhumane way of earning profits.
When we reap profits, we make use of low-cost resources, improve the efficiency and effectiveness of your products at the same time meeting the requirements of our stakeholders. Profiteering involves the exploitation of clients and stakeholders who have few alternatives, overcharging them, and exerting undue influence to maximise profits.
Perhaps you could have found yourself in a financially straining repayment for a personal loan or property loan that you took a couple of months ago. Such situations might present you with tough decisions on whether to let it remain that way or act on engaging in refinancing programmes.
WHAT ARE REFINANCING PROGRAMMES?
Refinance programmes are initiatives or contracts which done to immediately close or overstep the existing contract and bring in new financial obligations which will be substantially different from what the liable party was obliged with.
In simpler form, refinancing programmes are loans that are acquired to cover other loans. The refinancing programmes are indirect ways in which the borrower and or debtor communicates the hardships being faced in repaying the loan. In most cases, the creditor or lender will not have the knowledge that their dues are being refinanced but their dues will be settled in full amounts.
HOW DOES REFINANCING PROGRAMMES WORK?
Refinancing takes a similar nature in South Africa and the world over, the borrower or debtor who will be the party owing the lender or the creditor goes out to seek a loan that will be used to immediately cover current financial obligations with the initial lender. The borrower will strike a new loan agreement with the subsequent lender on which new financial obligations that the borrower will regard to be more lenient and manageable will be created.
The refinancing engagement can be done with the initial lender; in that way it will be just drawing a new loan agreement. When refinancing is done with a different lender, there will be no need for the initial lender to know where and how the debtor/ borrower sourced the money to make the repayment.
WHY DEBTORS CHOOSE TO REFINANCE?
Refinancing means that the debtor will be getting rid of old financial obligations, opting for new obligations that he deems to be easy and manageable to his abilities. The main reason behind refinancing is to reduce financial strain on your income. Normally personal loans, credit cards and other debts come with monthly instalments that may be too high for the borrower to balance with other financial requirements.
The larger the size of an instalment, the more pressure gets excreted on a monthly budget and this will mean that the family or dependents of the borrower will be left with very low disposable income to cope up with their lives.
IS REFINANCING GOOD FOR ME?
For a debtor or borrower to determine whether they should take refinancing, they should look into their financial obligations and the current strife their family will be making to fit into the smaller budget. With these, the borrower should determine if it will be feasible for the family or dependants to go like that through the repayment term of the loan.
When you see yourself failing or struggling to provide for basic needs that you used to meet before taking a loan, then you are at the right time of engaging into refinancing programmes. A refinance loan can be obtained from banks and other financial institutions which fund other debts, when you access it, it will be a great way of reducing a budget strain.
WHAT ARE THE MERITS OF REFINANCING PROGRAMMES?
Sometimes it’s better to take action than to wait and get yourself in an unmanageable financial bondage. The most important role played by refinancing programmes is to reduce pressure and strain on the budget, because refinance will allow the borrower to pay instalments or annuities that are lower than what was previously paid.
Refinancing programmes will also help the initial creditor to recover their funds earlier at the same time saving the borrower of defaulting, thereby keeping a good credit record for the borrower. When refinancing is done at early stages of loan repayment, it results in awesome increase of credit scores to the borrower.
WHY SHOULD I RECONSIDER ENGAGING IN REFINANCING PROGRAMMES?
lthough many people might find it easy to be in refinancing programmes, there are some individuals who find it emotionally straining to be in debt for a longer time.
Refinancing a debt means you are extending the length of the repayment, because you want to reduce instalments, there is no other way of doing it because the debt itself will not be reduced. For a lengthy term, some might feel tied-up to loan covenants and they might just want to end this in time.
John Brown owes R120 000 to ABC bank, on which he is supposed to pay R10 000 monthly instalments for the next 12 months from his monthly net salary of R36 000. His family and other dependents normally need R29 000 to make it through each month, a situation which could be hard to get through for a years’ period.
Bank Wise, another bank which is located downtown offers personal loans that can be used for refinancing debt amounts up to R150 000 at similar interest rates to ABC bank. If John Brown acquires such a loan, he can pay nearly R5 000 per month to clear up the R120 000 debt in two years, leaving him with R2 000 extra funds after meeting his monthly requirements. In addition, he made and early repayment to ABC bank loan, which means he gained much on credit scores.
Law enforcement helps our country to preserve the laws at the same time guarding the citizens and organisations against diverging from the legal provisions that would have been made to protect the public. With the use of regulatory authorities, any country can enhance efficiency by the laws that are passed by their country.
WHAT IS REGULATORY AUTHORITY?
A regulatory authority is an institution that is formed as a result of an act that is passed in a parliament to oversee, control, and making required provisions in a particular area of a country. When an activity happens to be significant or frequent activities that are undertaken by the populace, the legislators will always be tempted to put laws that will govern such an area.
The regulatory authority will enforce the legal provisions of a sector in line with the requirements that would have been passed in the acts. In addition to making revisions to the extent of the powers that the act would have given it.
WHICH REGULATORY AUTHORITIES CREDIT SERVICES IN SOUTH AFRICA?
The National Credit Regulator (NCR) is the primary regulator of credit services in South Africa. This institution put legal requirements that providers of credit services should have. In addition to that, the organisation will register and issue licences to credit service providers when they meet the needs of the regulator.
The NCR works in line with the provisions of the National Credit Act (NCA). On various occasions, credit service providers in the country will need to align their services with the Finance Intelligence Centre Act (FICA), the Public Finance Act, and the Reserve Bank Act.
As we carry on various activities in our lives, we create financial obligations that we will need to honor, and these obligations can only be accepted in full amounts on the timeframe that would have been agreed upon. Managing to provide relevant funds to various stakeholders is a crucial element of business success and the right way of preserving respect and moral standing in society.
WHAT ARE RELEVANT FUNDS?
Relevant funds are amounts of financial resources that are availed in full price at the right time that has been agreed or the time that will render these funds useful. Relevant funds will allow a party to carry successful activities, making sure that the intended purpose of the funds is carried out efficiently and effectively.
Relevant funds will need to be availed in various situations, and it might be in paying fees, undertaking a business project, paying our debts, and other financial obligations.
WHAT ARE THE KEY ELEMENTS OF FINANCIAL RELEVANCY?
Two essential things that need to be met to achieve financial relevancy; that is, all funds that will be deemed relevant would have made the time and quantity elements. When a payment or funds get availed in insufficient amounts, they will not be able to facilitate the required functions, and they lose relevancy.
On the other hand, the time that funds will be required is also a critical element, and when sufficient funds are made available at a date later than the required day, they will even lose relevancy.
Engaging with credit services and loans always come with responsibilities for the debtor, some of the duties are uneasy about dealing with, but as a responsible party, there are no better options beyond honoring the obligations. Repayment is the hardest part for many clients who engage in credit services as it will need the client to pay for what they used with an additional element.
WHAT IS REPAYMENT?
Repayment is paying back for what you obtained on credit, funds, or loans that have been extended by the creditor. Repayment takes place after a debtor (owing party) receives goods, services, or funds on credit with a promise to repay the creditor (owed party).
Repayment can be made on credit services that were issued under commercial or social level. If a company avail funds as a loan, the loan will need to be repaid. The same applies when your friend borrows your money, they will need to be compensated also. Depending on the contractual agreements that were initially made by the borrower and lender, repayment will include various elements.
WHAT ARE THE ELEMENTS OF REPAYMENT?
There are two common elements in all repayments of credit services, and these are the principal and interest charges. Usually, when creditors extend services, they peg their services with their market value as prices, these prices will represent the principal amount borrowed.
The principal will be added with an interest component to, that is the repayment amount will always be higher than the initial amount borrowed. In various scenarios, repayment will also include initiation fees, administration fees, and penalties where applicable.
REPAYMENT AND GRACE PERIODS?
The term of repayments and grace periods are some crucial determinants of credit service. The loan’s value to the debtor determines how much the debtor can use the funds for their benefits. A grace period will always come before repayment, and there is no repayment, which starts before the client is given a grace period.
A grace period also has impacts on repayments, the longer the grace period, the longer the repayment period. The relationship goes the same when a grace period is smaller.
It feels great when we spend funds acquired through credit services and purchase a lot of goodies on credit, but the repayment part of it does not usually look good. Repayment burdens are generally associated with irresponsible and uncalculated borrowing and purchasing of goods and services on credit, and these give a financial burden to the borrower.
WHAT IS A REPAYMENT BURDEN?
A repayment burden is a situation that causes emotional instability to a debtor due to the large amount that will be required to service debts at the same time. A repayment burden arises when the debtor’s income is low and repaying the debts would result in compromising of basic needs for the debtor and dependents. It is the amount of disposable income and the required amounts that determine whether a burden exists or not.
To an individual who has a higher disposable income, a large number of debts can be serviced without burdening the budget. On the other hand, a person with lower disposable income might face difficulties in paying debts of all sizes, thus exerting repayment burden on them.
HOW TO AVOID REPAYMENT BURDENS?
Repayment burdens can be avoided by cutting the causes of the burdens. A repayment burden can be avoided by taking calculated debts. That is, borrowing and buying on credit with knowledge of the exact amounts that will be needed for repayment, making sure that it will generate sufficient income. Clients can also choose lengthy repayment periods, thereby reducing the size of installments, which exert repayment burden.
As soon as the grace period lapses, it will be the time for clients of credit services to initiate payments to pay back what they owe. Repayment periods are the times when lenders exercise some cautions with their debtors to get their returns in full at the same time avoiding defaults.
WHAT IS A REPAYMENT PERIOD?
A repayment period is the time on which the borrower or debtor makes payments for the services or funds that they obtained with a promise of paying back. A repayment period comes in as soon as the grace period lapses. The grace period will be the time on which the debtor will be allowed to put funds, services or goods into use before initiating a repayment.
A repayment period will determine whether the client has managed to repay for the credit services as agreed or defaulted on the services. When a stipulated repayment period passes without the debtor making a full payment of the credit services, that service would be said to be defaulted.
WHAT ARE THE DETERMINANTS OF REPAYMENT PERIODS?
Loan or credit specifications will determine the size and nature of a repayment period. On the other hand, the credit score of the client can also determine the size of repayment period to some extent. Normally, large valued credit services will require lengthy repayment periods as the clients will need to reduce the size of installments.
When a loan is also provided to a low income client, there will be very little disposable income that the client can use to quickly make repayments and this normally pushes for a lengthy repayment period. In addition, clients with good credit rating will always be extended with lengthy repayment periods as they do not expose lenders to higher credit risk.
Some loans are made easy to repay due to great repayment structures that are crafted by lenders with good consideration of customers’ abilities. The norm is that, clients will do great repayments with customized repayment structures and so all creditors should practice this to achieve a low credit risk from their debtors.
WHAT ARE REPAYMENT STRUCTURES?
Repayment structures are the form or way on which the creditor requires payments to be made from the client. Repayment structures are made to enable the clients and debtors to make payments that easily align with the way they obtain income, hence reducing the risk of default to the creditor.
Repayment structures are a result of the value of the credit, the type of clients who are provided with credit services, length, and purpose of the funds or credit services offered. A repayment structure for a student loan and a business loan will need to vary and align with the activities that are financed.
WHAT IS THE AIM OF REPAYMENT STRUCTURES?
The primary aim or repayment structure is to align the repayment of credit service to the operations and the activities that have been financed. This will result in value addition to the client and also improved the chances of making repayments, thereby reducing credit risk.
The notion is that clients tend to make payments when the repayment obligation arises at the time that they will have money, if the payment is required prior or later to the date of receiving income, they will be tempted to default.
WHAT ARE COMMON REPAYMENT STRUCTURES IN SOUTH AFRICA?
In South Africa, equal installments are by far the most common type of repayment structure used to repay credit services. These are used on personal loans, credit cards, short-term loans, and purchase of goods on credit.
In addition to that, there are installments with a balloon. Installments with a deposit which are typically used when repaying for a credit service. Also, they used to fund the acquisition of assets, including motor vehicles. On a few occasions, clients are also allowed to make repayments with their amounts. However, this has a higher risk of default.
In modern-day lending, successful companies are those who have been able to provide credit services with a good balance between the client’s ability to repay and a large number of clients. It is better to lend smaller amounts to a large number of clients than to provide large quantities to be individuals, and these are some of the cornerstone practices of responsible lending.
WHAT IS RESPONSIBLE LENDING?
Responsible lending is the offering of credit services in a sustainable way. This involves providing credit services to clients who have willingness and ability, with affordable charges, fair terms, and sufficient amounts that will allow the clients to obtain the intended purpose. Responsible lending has much focus placed on the designing of application criteria and credit assessment of clients.
With responsible lending, lenders will be able to improve the financial condition of the clients at the same time, not exposing their future of lending to negativities. In doing so, the lenders should also need to realize reasonable financial gains so that they will be able to keep the practice for further engagements.
DOES RESPONSIBLE LENDING SIDELINE CLIENTS WITH BAD CREDIT?
Lending, which is done in the wrong way has more negative impacts on the clients than the intended good motives. Clients with a bad credit history will need to be further analyzed on an individual basis for the company to deal with them responsibly.
Typically, clients with bad credit would be having some level of irresponsibility when it comes to honoring financial obligations. Also, with some default, it would have occurred due to reasons beyond their control. Responsible lending does not sideline clients with bad credit scores, but few of these will obtain loans with reliable firms.
IS SOUTH AFRICA COPING WITH RESPONSIBLE LENDING?
South Africa has made consistent efforts to prevent citizens from being over-indebted with loans and credit services. Due to the massive number of credit service providers in the country, more and more people continually get lured into borrowing when they have lots of outstanding debts.
The National Credit Regulator (NCR) has put some legal provisions for its lenders to exercise responsible lending from initial engagement with clients. However, this did not root out responsible lending as our societies have many people continually borrow with outstanding debts and default loans after defaulting other ones.
Your experience of working and earning a regular income every month might come to an end at the time that you never expected it, and this will have negative impacts on several things including the debts that you have been servicing. Retrenchment is one of the most common ways in which employers use to cut costs and maximize profitability on their operations.
WHAT IS RETRENCHMENT?
Retrenching is the activity of cutting down the number of employees that are employed to match the new labor requirement. This exercise is carried for the long-term benefit of the employer who would be looking to cut or reduce payroll costs and align the number of the employees with the new capacity of the firm or the place on which people would be employed.
Retrenchment also commonly takes place when machines are introduced to carry duties that people were moving; this triggers the number of required labor down and results in retrenchment.
WHO IS LIKELY TO GET RETRENCHED?
Every employer has employees that are deemed to be critical members of the company. Depending on the duties that would be carried, there would be those who work as assistants and additional staff members. These additional members are usually the elderly, sick employees, and others who would be regarded as less competent.
These groups of employees are the ones who regularly face retrenchment when a company wants to reduce costs through the cutting of labor. Also, employees can be retrenched when their department no longer exists at the organisation, and this will happen despite their skills, age, and abilities.
WHAT HAPPENS ON RETRENCHMENT?
Employees who get retrenched will be given financial payments called retrenchment packages, and these are funds that are meant to aid the employee over the time of looking for another job or the immediate life after employment.
The retrenchment package varies with the time that the employee has served the entity when the employee has served for a long time, the firm will have to fork out large sums of money as a package. In some scenarios, retrenched employees are given non-monetary benefits that will allow them to earn an income after employment.
Goods and services represent two significant components that any country needs to get the life of its citizens going, and these two are what business acumens always refer to when a trade is mentioned. Service delivery comes to satisfy the needs and wants of human beings without the creation of physical elements.
WHAT IS SERVICE DELIVERY?
Service delivery is the provision of services to meet the needs and wants of individuals and organisations. Service delivery does not result in the direct creation of physical items (production of goods); it facilities production in an indirect way. Services are intangible, and they include medical services, financial services, legal and administrative services.
A person who seeks services is generally referred to as a client, but in some areas, there are individual names that are given to these people. A client can be a patient when obtaining credit services, a student when getting educational facilities, a debtor when getting credit services, and so on.
WHAT MAKES A GOOD SERVICE DELIVERY?
Quality is the ultimate measure of excellent service delivery in any area of practice. Quality will address all other factors like reliability, trust, the profitability of the firm, and other issues that stakeholders might be concerned about.
Quality is the ability to meet the requirements of customers or stakeholders of the service which is being delivered. Quality answers the questions of prices, accuracy, efficiency, and effectiveness when these are all good, and then a service delivery will be rated as outstanding.
Short Financial Service
The existence of smaller valued financial services has helped a massive number of South Africans to address their immediate shortages, availing funds to smoothen their daily activities in times of need. These short-term financial services cover the grip that arises between two more significant events, allowing people to quickly maneuver to the other project, making smaller contributions that have a more substantial impact.
WHAT ARE SHORT-TERM FINANCIAL SERVICES?
Short-term financial services are smaller, instant, and low valued functions that are provided to finance, insure, or avail credit to a client. Instant loans, insurance for goods in transit, bills of exchange, and other credit facilities that mature within six months can also be classified as short-term financial services.
The existence of these short-term services is to meet the immediate but essential needs of parties which would be involved in another activity. Short financial services do not work on their own but work to facilitate a smooth flow of operations on larger projects or events.
WHAT IS THE DIFFERENCE BETWEEN SHORT-TERM FINANCIAL SERVICES AND LOANS?
Short-term financial service is a term that encompasses a lot of money related activities, that is, short-term loans also fall under the category of short financial services. Short-term financial services include credit services, loans, insurance, and other securities that are done within six months.
On the other hand, short-term loans are financial credit extended to borrowers with a promise to make a repayment. These may come with interest charges when they are provided commercially.
Single Loan Obligation
Loan repayment is much of a burden to many borrowers, the feeling of being indebted at the same time channeling funds out brings emotional unrest to many people to the extent that everybody prefers to keep it minimal. Single loan obligations should be the only way people manage their debts, making sure that they only borrow for what they can repay for.
WHAT IS A SINGLE LOAN OBLIGATION?
A single loan obligation is represented by one loan and one channel of repaying the loan. Unlike many requirements where the borrower would have obtained funds from various fronts, the sole loan obligation comes when one gets funds from a single lender for an individual loan.
Single loan obligations will allow the borrower to have some form of financial independence and an increased ability to contain and forecast on the loan repayments.
HOW IS A SINGLE LOAN OBLIGATION INITIATED?
A Single loan obligation generally comes as a result of two similar activities, that is, borrowing a single loan or from the consolidation of various loans and debts. Borrowing a single loan at a time from a single lender is highly identified as a responsible way of sourcing for loan finance. When clients obtain such funding, they will acquire financing but have an individual loan obligation, which is generally manageable and less straining on repayment.
On the other hand, a single loan obligation might come as a result of consolidation. When an individual acquires a consolidation loan, it repays all other smaller loans and creates a unique and relatively lower loan obligation as compared to the aggregate of repaid ones.
WHAT IS THE BENEFIT OF A SINGLE LOAN OBLIGATION?
A single loan obligation has positive impacts on three areas, which are on instalment size, charges, and the emotional stand of the client. The instalment of a single loan obligation will be larger than that of only loans, but it will be smaller than the aggregate or total of those loans combined. This will mean that the borrower will have reduced strain on their budgets at the same time helping them to cope with the debt emotionally.
Various loans will come with their service fees, initiation fees, and other charges that are relevant to each of the loans. These charges may pose a more significant financial loss to the borrower, but if contained through a consolidation loan, they will be marginally reduced.
Every business entity and other institutions in the country make decisions with high consideration for the demands, needs, and preferences of its stakeholders. These are the people to whom every organizational activity is done to answer their request. Also, the ability of the institution to align with the stakeholders is another way of succeeding.
WHAT ARE STAKEHOLDERS?
Stakeholders are people, organisations, and parties that have an interest in institutions’ operations, and these people would include workers, shareholders, management, and customers. If a party has one or more interest in an organisation’s activities, they become a stakeholder despite the value and size of their interests in the operations. This again shows that every transaction that an organisation carries, there will be stakeholders; these could be customers, clients, creditors, debtors, or regulatory authorities.
On corporate activities, shareholders are regarded as ultimate stakeholders, and these people have an interest in all the business operations. They will be concerned about value addition to their wealth.
WHAT IS THE IMPORTANCE OF STAKEHOLDERS?
Stakeholders ensure quality, responsible practice, and efficiency in all business operations. These are the people who are concerned about the organisation’s activities, on provision services, clients, and shareholders will ensure that managers design the best of services that will beat competitors. On the other hand, regulatory authorities provide that organisation’s work responsibly by enforcing a law that regulates the organisation’s activities.
To improve the organisational activities, the managers will ensure that the organisation employs efficient business practices, those that will allow it to realise quality services all the time.
WHAT IS THE DIFFERENCE BETWEEN STAKEHOLDERS AND SHAREHOLDERS?
Stakeholders are people or parties that have interest in business activities, their interests can be those that arise from any reasons. Shareholders are stakeholders who own the company, they are the people who capitalise the organisation through buying of shares.
Their interests in the company are mainly because they will be looking to manage their wealth, making sure that they gain value from their investments rather than loosing. Shareholders are part of stakeholders who have interests in all activities that the company undertakes, simply because any corporate activity have an impact on their shares.
The majority of people and other companies can testify that they face difficulties in making payments to their creditors, despite having enough funds to perform such transactions in their bank accounts. This is just one of the few behaviors that disturb a person’s credit profile with the creditor, to improve that, stop orders can help individuals who have the willingness to stay updated with their dues.
WHAT IS A STOP ORDER?
A stop order is an arrangement made by a bank account holder with the banker to transfer a fixed amount of funds to another bank account over a specified time. The funds can be transferred to a bank account on the same bank or different bank, allowing the account holder to honor their financial obligations.
Stop orders will see the bank account holder specifying the dates or periods on which the bank should transfer the money to the stipulated accounts, and this will happen in every period that the account holder would have instructed the bank to do.
WHAT IS THE IMPORTANCE OF STOP-ORDERS?
The ultimate role of stop orders is to make sure that bank account holders honour their financial obligations, especially for things that might include insurance, rentals, school fees and other things that have an annuity form of payment. Defaulting on financial obligations might take place dues to mistakes or errors that are made by the bank account holder, and the stop order arrangement will ensure that there is no such type of mistakes.
Stop orders will not need the bank account holder to remind the bankers of anything; every payment will be set to transfer funds when the time comes automatically.
WHAT IS THE DIFFERENCE BETWEEN STOP ORDERS AND DEBIT ORDERS?
A stop order is a form of payment arrangement which is done by the bank account holder and the banker. On the other hand, a debit order is a form of payment arrangement that is done between the banker and the creditor or the party that needs to be paid.
When a debit order is done, there needs to be an initial agreement between the bank account holder and the creditor. The bank account holder will permit the creditor to deduct funds from their bank account at the same time, giving them full banking details on a written agreement.
Investors have interests in business activities in various ways, and some would like to limit their investment to a specific portion of the company or sector, making sure that their wealth is well diversified by a channel of income that flows from a different industry. With that, shareholders may use a company to obtain control of another company, creating a parent and subsidiary relationship.
WHAT ARE SUBSIDIARIES?
Subsidiaries are entities that are owned and controlled by another entity. A company does not become a subsidiary when one of these two does not exist, that is ownership and control. A Subsidiary can be partly or fully owned, but monitoring will only live in full.
When the form of control is diluted, the company owned will be an associate instead of a subsidiary. A company that acquires ownership and control of another (subsidiary) become known as a parent company. The parent company will have some form of ownership and control of more than 50% voting rights of the board of the subsidiary company.
WHAT IS THE DIFFERENCE BETWEEN A SUBSIDIARIES AND AN ASSOCIATES?
Both the entities would be party owned or wholly owned by another entity or entities, but the difference arises on the element of control. When any other body does not control an entities decisions, but the ownership is diluted, it will be an associate.
Usually, associates have less than 50% of their voting rights with other entities. Instead of these entities having control, they will be having interests in their investments. Subsidiaries and associates are terms that mentioned interchangeably because they serve a much similar purpose with investors.
CAN A SUBSIDIARY BE LARGER THAN A PARENT COMPANY?
Once part ownership and control of more than half of voting rights have been passed to another entity, that company becomes a subsidiary despite its size.
On most occasions, subsidiaries would be smaller than the parent companies, due to the reason that smaller companies typically do not have the financial muscle to buy shares in large companies. On a few occasions, a subsidiary can be larger than a controlling entity, and this only happens when a company obtains control with ownership that is below 50%
Terms And Conditions
Committing efforts and resources to other parties expose the committed party to various risk and the risk would normally bring loss when the other party decides to go other ways than what would be expected from the two’s engagements. In a bid to reduce this risk, parties can make use of terms and conditions to obtain some level of security.
WHAT ARE TERMS AND CONDITIONS?
Terms are agreed components of services delivery engagements while conditions are what would be applied when one party finds themselves in the wrong way with the laid down agreements. Together, terms and conditions are commonly known as restrictions that parties bind each other whenever they engage in service, reducing the risk parties deprive each other when they reach agreements.
ARE TERMS AND CONDITIONS ENFORCEABLE?
On every organizational activity, terms and conditions should be done on a field that is legal and enforceable. Similar to contracts, terms, and conditions will be applicable to the extent of their legality, anything illegal will not be applicable. Terms and conditions of an engagement that is outside the law will be regarded as void from the initial meeting, which means the grieved party will not be entitled to anything.
In the modern world, contemporary financial services leader in the market as they are efficient fast and accessible from various parts of the world, these surpass the activities of traditional lending that are still practiced by a few lending institutions in South Africa and the world over. Conventional lending practices are regarded to be slow, bureaucratic, and poorly customised as compared to modern lending practices.
WHAT ARE TRADITIONAL LENDING PRACTICES?
Traditional lending practices are primitive activities that are done by financiers in extending credit to the people or organisations. This is generally referred to like the old way of providing credit services. Traditional lending exists on loans, credit cards, and another forms of financial credit services that could have existed before the invention of new ways of providing funding.
Traditional lending includes the use of paperwork on all the stages of lending, limited use of technology, computer systems, and the internet. In traditional lending, there is no self-service; there is a full presence of staff members on all the stages that clients take in acquiring funding.
WHAT ARE THE ADVANTAGES OF TRADITIONAL LENDING?
Traditional lending might be referred to as “the real way of loaning.” This happens so because very few of the activities of the borrower go unnoticed by the lender as there will be apparent bureaucracy and paperwork. This will make sure that clients will not be exposed to online scams and cyber-crime that is in full force online.
With traditional lending, the institution has control of everything, their system database, and internal controls. This means that there will be no funds that will be exposed to external theft or fraud by the internal staff. Everything will be done physically and visibly.
WHAT ARE THE DISADVANTAGES OF TRADITIONAL LENDING?
Traditional lending has few disadvantages that many of the lenders have identified with a high opportunity cost on their operations. These are slow service, human errors, and low coverage. The slow services will reduce the number of clients that are served hence reducing the revenue capacity of the organisation at large, ultimately yielding small profits.
Due to the massive employment of human beings in traditional lending, their financial models will have a high number of errors. Also, which might turn out to be costly in their operations. In addition to these, limited use of technology results in low coverage since the entity will only be able to serve clients who can visit their branch.
Loan service providers have a risk-averse behavior, they will avoid all clients that expose their financial resources to default risk, but when these entities deal with clients who have good credit scores, they can go as far as providing unsecured loans.
WHAT ARE UNSECURED LOANS?
Unsecured loans are funds that are lent or provided to borrowers without collateral backing. This means that the lender exposes their funds to a higher loss if the borrower fails to repay the loan in full.
Unsecured loans typically come in smaller amounts that would be required to be repaid in a short-term period as compared to secured loans. The majority of customers who obtain unsecured loans are the people or organizations that would be having good credit records in addition to having a higher level of income.
WHAT IS THE DISADVANTAGE OF HAVING UNSECURED LOANS?
Most firms that provide unsecured loans in South Africa have very high charges in both interest rates and service fees. These entities catch clients unaware of believing that their loans are easier to get, but when one calculates the aggregate of their charges, it will be a fortune lost.
Most providers of unsecured loans, charge service fees, and initiation fees that can double the number of interest rates. It will be charged on average personal loans in the market. Thus, clients should always be cautious with unsecured loans.