As South Africa tries to extricate itself from the second wave of Covid-19 a year after entering a strict lockdown, it is evident that the pandemic has kept a magnifying glass on the fault lines of our society. The perpetual payday debt trap is one such loophole, and it is just as serious as ever, having a big impact not only on the lives of those affected, but also on the companies in which they work.
According to Caroline van der Merwe, co-founder of tech company SmartWage, which provides an Earned Wage Access (EWA) platform for employees in all industries, informal lenders have built sophisticated networks and infiltrated companies, employing agents within these companies to target co-workers.
“In most cases, we have found that loan sharks operate in the workplace itself. We have discovered that there is a system of lenders that recruits company employees to act as agents between the loan shark and the employees. Typical rates for disbursed loans vary between 30% and 100% for the month, ”she said. She says EWA is a compelling tool in the toolbox to tackle the problem.
“We spoke to a user of our service who explained that before, if she found out that she could not reimburse the agent, she would abstain from working on the day the payment was due so that she could borrow. to another loan shark to repay the debt. she owed it to her own workplace. Employers need to recognize that these systems exist and cut them off at the source, ”she said.
“These South Africans lucky enough to have kept their jobs during the pandemic have not been spared financial hardship. Many had to spread their income even more as family members who lost their jobs became dependents. Said van der Merwe.
The reduction in hours and shifts has had a marked impact on employees. “We know that many companies have reduced their hours or their wages as a direct result of the pandemic. The effect of this is obvious. SmartWage conducted research among users of our EWA product in various industries, and we were able to develop a detailed view of the lived reality of workers. One of the findings is the rising cost of living, ”she says.
The results of this research are compiled into a report which, when available, will help paint a clearer picture of the state of employees and debt in the South African workplace.
The great tragedy of the payday debt trap is that it impoverishes the poor because of the exorbitant interest they pay. A richer person would not have to pay this penalty for a routine or emergency expense.
Our research has shown that financially struggling employees are less likely to be totally focused on the job at hand and will have poor attendance results, which will affect their performance and business results. Finding lasting solutions benefits everyone and here all stakeholders have a shared responsibility.
As SmartWage has expanded its presence in South Africa and gathered information, van der Merwe says there are a few realities that have emerged that all employers should be aware of. These are:
- Employees can take time off work if they are unable to repay a debt to a co-worker.
- Employers need to recognize that whether they choose to admit it or not, many, if not most, of their employees are in debt traps.
- EWA is not a quick fix to the problem. There are outliers that are already so deep in the debt trap that access to wages will not help. There are also those who do not struggle with debt and may not need EWA. But for the large community, it is an effective tool that employers can provide to make their employees more resilient to financial shocks.
- Psychologically, employees who worry about their finances will be less focused, productive and safer on the job.
- Employers can create a powerful retention tool and value proposition for employees using a tool like EWA.