The mining company is implementing a financial wellness programme to tackle the crippling debt of many South African employees to unscrupulous lenders

Overview

In recent years, employee indebtedness has become a major concern for numerous sectors in South Africa, including the mining industry. Over indebtedness not only has a negative effect on the economy, but also on the state of mind for employees as it can lead to stress and depression, affecting both home and work life.

At Anglo American, we are committed to the wellbeing of our people and are particularly concerned about the effects of excessive individual indebtedness. We feel we have a responsibility to help our people free themselves from debt and to avoid the snares and consequences of poor lending practices.

In October 2014, we introduced an indebtedness programme. It includes the auditing of garnishee orders issued by the courts against employees’ pay, as well as education programmes to enable employees to deal with high levels of indebtedness, and undertake responsible financial planning.

Background:

A growing number of people in South Africa are struggling with crippling debt and many mining employees are targeted by unscrupulous lenders. Borrowers sign contracts unaware of the implications for their future cash flows.

A 2014 audit revealed that about 26% of Anglo American Platinum’s workforce in South Africa are heavily indebted (defined as someone who uses more than half of his or her salary to service debt).

In response, we are working to free our employees from debt and help them avoid the traps and consequences of irresponsible lenders through an indebtedness programme.

Programme summary:

Anglo American investigates every claim that is made against the monthly earnings of employees who choose to enroll in the programme. A third party service provider checks the validity of Emolument Attachment Orders (EAOs) issued by the courts against employees’ pay, as well as the legitimacy of the underlying debt. These service providers help us ensure that only valid, accurate and affordable deductions are put in place. 

We have also taken a stand against unlawful or unscrupulous practices by debt administrators.  A debt administrator is often appointed by a court to help a person who is in debt to properly manage their affairs and repay their creditors. However, some administrators are not only failing to provide proper records, but are also charging excessive fees – in excess of the amounts allowed by law.

In January 2015, our Platinum business announced that it had brought legal proceedings against a major debt administrator which has engaged in such practices and has, in the process, compromised the financial security of some of our employees. Through this litigation we hope to clarify the law regulating administrators, and to hold accountable administrators that have overstepped the bounds of the law, or exploited ambiguity in respect of their entitlements.

In addition, Anglo American sets out to assist employees in managing their indebtedness and personal finances by providing legal aid and personal financial training to ensure they take a more robust approach to their personal finances. Anglo American is also rolling out a financial wellness programme. It comprises a financial literacy debt relief component with specific targets to improve employees’ disposable income, and also includes a challenge to the fees charged by lawyers when acting as debt administrators.

Results:

 To date, the financial wellness programme has:

–     saved and refunded over R3 million by auditing administration and garnishee orders for irregularities and tackling collectors and lenders on these;

–     reduced the number of garnishee orders from 6099 to 3329 over three years;

–     reached a total improvement to monthly disposable income of R1,046,173 through debt relief solutions;

–     reduced debt commitments from 54% to 28% of net income using debt relief solutions;

–     tackled various micro lenders for irregularities on loan agreements. 

The results extend beyond Anglo American’s Platinum business. Our South African iron ore business, Kumba, has also benefitted significantly and saved its employees just over R125, 000 in the six months since the project started. 

Lessons learnt:

There is no quick and easy solution and it takes time to help employees get out of debt. Working with our peers, organised labour and government, we have set clear targets to achieve our key objectives, such as reducing debt instalments and eliminating charging penalties.

Anglo American also recognised that the problem requires a holistic and long term solution. We need to educate our workforce on debt, how it works and why proper budgeting is important. Once the debt is settled, and even managed for a few years, employees need to take responsibility for their actions, never falling back into the vicious cycle of debt. 

Next steps:

We are already seeing improvements and are tackling reckless lenders, but the programme is still in its early stages. There are still key challenges, in particular the take-up of these services by employees. It is estimated that we need to bring 30 per cent of our employees in South Africa into the programme.

Key objectives are to:  

–     reduce debt instalments to less than 50% of net income for all employees seeking assistance

–     ensure at least 70% of employees receive financial literacy education

–     save and refund at least R10m for employees from irregular garnishee deductions, and

–     improve employee trust through employer financial assistance programmes.