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Reckless Lending

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Agricultural loans pose major threat to Department, must be investigated

Dear MyPE

Some of the agricultural and non-agricultural loans issued by the Eastern Cape Rural Development Agency (ECRDA), which falls under the Department of Rural Development and Agrarian Reform (DRDAR), could be considered reckless lending and place the department at risk.

It is for this reason I have written to the chairperson of the Standing Committee of Public Accounts (SCOPA) Veliswa Mvenya, to request a full investigation into the lending practices of the ECRDA.

Given the state of public finances, reckless lending practices by state entities is criminal and have to be stopped at all costs.

In response to a parliamentary question, DRDAR MEC, Nomakhosazana Meth, revealed that that the entity has written-off some R28,6 million in irrecoverable loan funding since 2009.

As at the end of the 2018/19 financial year, the ECRDA was owed a total of R185,5 million. This is a staggering amount of money considering the monetary value of the average loan awarded to applicants.

Over the past three financial years, the ECDRA has issued 599 loans, totalling over R68,4 million, making the average loan around R115 000.

MEC Meth also revealed that the repayment rate of loans over the past 10 years, is standing at just 75.5%.

The ECRDA is a registered credit provider with the National Credit Regulator and currently makes agricultural and non-agricultural loans available to applicants residing within the boundaries of the Eastern Cape.

These agricultural loans are for individuals that require seasonal input capital for primary production and /or the purchase of assets or farming infrastructure. Non-agricultural loans are short terms loans that provide tender entrepreneurs and hawkers with financial assistance.

While the loans offered by the ECRDA play a vital role in supporting small scale and emerging farmers, the approval of some of these loan facilities by the ECRDA could, in certain instances, be tantamount to reckless lending by the entity.

In awarding loan funding to individuals that have no reasonable prospect to repay them, the ECRDA does not only compromise the recipients, but also exposes the provincial entity to adverse and unnecessary financial risk.

It is for this reason that I have requested SCOPA to investigate the matter, with specific emphasis on:

  • The application processes for these type of loan applications;
  • The criteria on which successful loans are awarded to applicants;
  • The criteria for writing-off loan funding as irrecoverable bad debt;
  • Whether the ECRDA is not in breach of Section 81 (2) of the National Credit Act No. 34 of 2005 or any other section of said act which would render its lending practices ‘reckless’;
  • What percentage of the outstanding loan funding is likely to be written-off over the next three years?

Given the current financial climate, the provincial government simply cannot afford that the ECRDA awards loan funding to individuals that have no reasonable prospect of repaying such loans.

In addition, any contravention of the National Credit Act could have serious repercussions not only for the ECRDA, but also the provincial administration.

Reckless lending steals opportunity from the people who need it the most. The DA is committed to creating an open opportunity society for all.

Regards

Retief Odendaal

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Port Elizabethan

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