Trends in the asset-based loans industry paint a picture of how COVID-19 and the lockdown are affecting South Africa’s economy

Director of lamna, Charles Meyerowitz, has a unique vantage point from which to gauge the financial health of South Africans.

Can you tell us a bit about your business?

Lamna offers asset-based loans to high net worth individuals in South Africa. We’ve been operating since 2013. So we’re into our eighth year of operating now, although in some ways we still feel like a startup.

South Africa entered a technical recession in the last quarter of 2019 – so the economy was struggling even before the COVID-19 crisis. Before the lockdown, were you already seeing the impact of this in your business?

Certainly. The asset-based loans industry is a good barometer for the health of our economy.

Our business operates better in a growing economy.  We create liquidity from existing, owned assets (as opposed to creating “new credit” out of thin air, so to speak). However, people borrow only when they have a reason to borrow and they know they can pay back.

The most common reason our clients need loans is to fund business opportunities. There’s work to be done and there’s a need for liquidity to make that possible.

When there’s a recession, there is less work going around. With fewer opportunities, there’s less need for funds.

The initial lockdown period between 26 March and 1 May resulted in the closure of a significant portion of the South African economy. What impact did this have on your business?

Like all other businesses, our doors were closed and all we could do was attend to the odd query.  There was just nothing going on.

In terms of our clients’ obligations, we gave payment deferrals where possible. This created significant cash flow pressure for us.

How are things changing now that the lockdown regulations have been eased? Are you seeing a spike in loan applications?

We are still in a period of economic contraction. In South Africa, we are also still facing a lot of uncertainty.

As a result, people are still loath to borrow funds. So no, there is not a spike in loan applications.

We are seeing more activity on the invoice discounting side of our business. This involves providing finance to companies that sell large orders of specific products, for example to the government or to other blue chip companies.

The uptick in invoice discounting has been due to the COVID-19 situation. People suddenly need to place very large orders for scarce goods to fulfil large orders, and they need finance to help them get the stock.

In terms of loans against moveable assets, a trickle of deals has started flowing in. This is very encouraging. It suggests that some optimism is re-emerging. But we have a long way to go.

The South African Reserve Bank has dropped the repo rate. Do you anticipate that this will drive consumers away from the short-term loans market and towards traditional bank loans?

We have never competed with the banks. Although we both deal in money, we have very different offerings. 

We are not long-term funders of a business. We are creators of short-term liquidity – funders of opportunity.

Often, we are a stop gap for while our clients wait for banks to complete the credit approval process.

We offer an immediate solution for liquidity, enabling individuals to create the funds and momentum to initiate projects or see projects through. 

I think the drop in interest rates will offer relief to existing borrowers but is unlikely to drive a growth in credit.

Your business operates nationally, with branches across four provinces. Does your business data indicate any major differences in the economic impact of the lockdown between provinces?

We are seeing more activity in Gauteng and Natal than in Cape Town. I suspect that’s because of the (for now) larger number of COVID-19 cases in Cape Town, which makes people reticent to go out.

Have you seen an increase in the number of small business owners using assets to secure loans?

It’s too soon to tell. Businesses are only now starting to trade again. It’s likely that there will be an increase in the demand for cash – but we haven’t seen a significant increase as yet.

Some analysts have predicted a V shaped recession – in other words, a strong drop followed by strong recovery after the lockdown. Others are anticipating permanent damage to the economy and a long, slow recovery. What is your personal opinion on the long-term economic impact of the pandemic?

As much as I would like to say I expect a V-shaped recovery, I suspect this will follow more of a U-shape. The economy isn’t likely to recover sharply or overnight.

I think there is a huge disconnect between people on the street and the JSE for instance.

JSE values may suggest more of a V-shaped recovery, at least initially, because of the resumption of trading. It will take longer for average South Africans to recover their confidence in the economy.

We are still going into the most critical stage of the pandemic and that creates doubt and uncertainty. From my perspective, doubt and uncertainty are the weights that pull down hope and growth – so we still have quite a way to go.

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ABOUT LAMNA

Founded in 2013, lamna is a registered financial service provider and credit provider that specialises in providing asset-based loans to high net worth individuals in South Africa. The company has branches in Cape Town, Port Elizabeth, Sandton and Durban, as well as a branch in Gabarone, Botswana.
 

Media contact

Kaya Skye; Gnu World Media

064 174 8475/010 020 1886

kaya@gnuworld.co.za