Workers borrow more to cover transport, food costs

The costs of the Ukraine war have started to hit closer to home in South Africa. Workers are spending more on transport, food and electricity to make it through the month.

Spiralling international oil prices, largely on the back of the Russia-Ukraine conflict, have seen record fuel prices locally, which is also fuelling higher food prices.

Earned wage access companies Paymenow and Level Finance say already stretched workers are battling to make it through the month without drawing down on wages before the end of the month.

Through the earned wage access process, workers can access part of their earned salary or wages in advance of month-end.

Lenders are also able to keep close track on the reasons for borrowing.

As petrol prices are expected to hit around R24 a litre in April, wage increases are starting to fall behind cost of living increases.

According to Transaction Capital, which finances minibus taxi fleets around the country, taxi fares have increased by more than 9% per year since 2013. This outstrips growth in salaries over the same period by some distance.

Statistics gathered by Paymenow show that those workers who have requested payments have done so mainly to cover their transport costs.

In January, employees signed up with Paymenow requesting advances were trying to cover commuting costs to work 46% of the time. By comparison, only 23% of disbursed payments were used for food. The trend continued in February and March.

“Taking on debt simply to cover monthly living costs is the first step to being trapped by the unreasonably high interest rates associated with loan sharks,” said Deon Nobrega, Paymenow cofounder and chief executive.

“Earned wage access as a concept is designed to prevent this by allowing workers to draw portions of their earnings throughout the payment cycle to meet everyday needs or deal with financial emergencies.

“Historically, not being able to meet transport costs has been a key driver of employee absenteeism and churn in SA,” said Nobrega. “The majority of those in our economy who have a formal job are blue-collar workers and financially vulnerable.”

Raeesa Gabriels, CEO and founder of earned wage access company Level Finance, has likewise observed an uptick in borrowings due to higher public transport costs.

“In January, we saw a lot more people accessing borrowings through our platform for school books and uniforms. In recent weeks, borrowings have increased due to higher fuel costs, which impact taxi fares and public transport costs, as well as for food, electricity, data and sudden emergencies,” she said.

“We are seeing people run out of money much quicker than was the case previously, and this is obviously due to the rising costs of living,” added Gabriels.

Earned wage access has grown in popularity, with companies signing on to help workers out of the unsecured credit trap, or from having to borrow from family and friends to make it through the month.

Level Finance, which is backed by fintech financier AlphaCode, allows employees of client companies to borrow up to 25% of income that has been earned and not paid. This is particularly useful for workers who are paid monthly.

They are able to borrow against income accrued during the month. The client company deducts the borrowed amount at the end of the month to settle the lender. The costs vary, but Level Finance charges 2.5% per transaction, with a R10 a month once-off flat fee. “It’s designed to get people out of the debt trap and avoids them having to borrow at exorbitant rates from the money lenders,” said Gabriels.

The SA government is yet to announce measures to help consumers cope in the face of spiralling fuel costs.

Some countries announced domestic fuel tax cuts and subsidy increases to maintain affordable price levels.

“South Africa did protect consumers from a petrol price jump in 2018, but the seemingly protracted time frame of the Russia-Ukraine conflict looks set to test the country’s balance sheet as global fuel price hikes drive consumer inflation,” said Nobrega.

In recent weeks borrowings have increased