Loans through retailers

Posted On Wednesday, 08 August 2001 03:01 Published by
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What is the difference between a microlender and a clothing retailer? Not much if you are looking for a personal loan from an Edgars, Jet or Foschini store.

What is the difference between a microlender and a clothing retailer? Not much if you are looking for a personal loan from an Edgars, Jet or Foschini store.

Clothing retailers have joined hands with financial institutions in providing small loans to the public. Banks have often been criticised for not providing loans to previously disadvantaged people but have now found a way of providing these services by partnering the retailers.

Foschinis subsidiary, RCS Personal Finance, reached a deal with NBS, a division of BoE Bank, this year. NBS would outsource its loan application processing and the back-end book management of its unsecured personal loans business to RCS.

When Foschini started RCS in a joint venture with Mineworkers Investment Company Empowerment Fund in 1999, it expected RCS to contribute 10% of group after-tax revenue in three to four years. BoE has not stopped with Foschini, as it reached an agreement with Pep Stores for rolling out Pep Banks together.

Edcons subsidiaries Edgars, Jet stores and Sales House have reached a deal with African Bank to offer small loans.

The retail group expected to make R50-million from selling financial products. African Bank's joint venture with Edcon would double the banks branch network.

The R50-million includes the sale of its Hollard Insurance products in the groups account protection plan.

Food and clothing retailer Woolworths has so far been the leading retailer in pushing out financial products. Woolworths sells a variety of products, among others unit trusts. Earlier this year it was the first retailer to issue a credit card.

A retail analyst said it made sense for retailers to go into financial services.

The analyst said a middleaged women who had little or no experience in managing finance was the normal profile of a Woolworths customer.

These women, who found going into a bank scary, would more likely buy a financial product in an environment where they feel more comfortable, such as a Woolworths store.

The analyst said retailers were more than happy to get into financial services, as they understood the publics financial needs better than most SA banks did.

Before the advent of the microlending industry, banks generally did not believe the market was big enough to make a profit, the analyst said.

A big danger to the retailers and banking partners was oversupply, the analyst said. With most banks looking for a way into the market, no one had any clear idea how big this market was going to get.

Publisher: Business Day
Source: Larry Claasen

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