THE POOR PAY MORE: Are Cellphone Rental Companies Charging Financially Excluded South Africans a Poverty Premium?
A document-based investigation raises serious questions about the cost of cellphone access, consumer rights and whether poor South Africans are paying substantially more because they cannot qualify for traditional credit.
By Noko Maleka | InsightJoziNews.org
In South Africa, being poor can be expensive.
For millions of South Africans who do not qualify for traditional credit, have limited credit histories or have poor credit records, accessing basic goods and services can come at a much higher cost.
This raises a serious question:
Are financially vulnerable South Africans being charged a poverty premium simply because they have fewer financial choices?
InsightJoziNews.org is examining the growing cellphone rental and rent-to-own market, including companies such as FoneYam and PayJoy, which provide consumers with access to mobile phones through rental or rent-to-own arrangements.
These products are marketed as alternatives for people who may not qualify for traditional cellphone contracts or conventional credit.
On the surface, the model appears to provide access to technology for people who may otherwise be excluded.
But the real question is not simply:
“Can the consumer afford the monthly payment?”
The real question is:
How much will the consumer ultimately pay — and will they actually own the cellphone at the end of the agreement?
A R3,000 cellphone that could cost thousands more
Documents reviewed by InsightJoziNews.org raise questions about the total cost of certain cellphone rental arrangements.
In one example, a cellphone with an approximate value of R3,000 could result in a consumer making rental payments that amount to approximately R9,000 over a 12-month period, depending on the specific contract and payment structure.
Despite making these payments, the consumer may not automatically own the cellphone at the end of the rental period.
An additional payment may be required if the consumer wants to acquire ownership.
This raises a fundamental question:
If a financially vulnerable consumer can afford to pay several times the value of a cellphone over a period of 12 months, why can that same consumer not access more affordable credit to purchase the phone in the first place?
The consumer may be considered too risky for a traditional cellphone contract.
But they may still be expected to make payments that could significantly exceed the original cash value of the device.
Is this genuine financial inclusion — or is it the monetisation of financial exclusion?
The poverty premium
A consumer with money may simply purchase a cellphone outright.
A consumer with a strong credit profile may qualify for a conventional cellphone contract.
But a consumer with limited access to credit may be required to enter into a rental or rent-to-own arrangement that could result in them paying substantially more over time.
This creates an uncomfortable contradiction.
A financially vulnerable consumer may effectively be told:
“You are too risky for affordable credit.”
But the same consumer may then be offered an agreement that requires them to pay significantly more for access to the same product.
This raises an important question:
Is the consumer genuinely being protected from financial risk, or is the cost of that risk simply being transferred to the consumer?
The monthly instalment is not the full story
One of the biggest concerns in any long-term payment agreement is the difference between the monthly payment and the total cost.
A monthly instalment may appear affordable.
But the total amount paid over 12 months, combined with any additional payment required for ownership, may tell a very different story.
Consumers should therefore be able to clearly see:
- The cash price of the cellphone;
- The total rental payments;
- Any additional ownership payment;
- The total amount required to eventually own the device;
- What happens if a payment is missed;
- What happens if the cellphone is stolen;
- What happens if the device develops a fault; and
- Whether the consumer remains responsible for payments after losing access to the device.
The question is whether consumers fully understand the difference between:
“I can afford the monthly payment”
and:
“I am receiving fair value for the total amount I will pay.”
Is the word “rental” enough to answer the legal questions?
This is where the matter becomes particularly important for regulators.
A company may structure an agreement as a rental rather than a traditional credit agreement.
That legal distinction may be important.
However, from the consumer's perspective, the economic reality may appear similar: the consumer makes regular payments over a fixed period in order to access a cellphone.
The central question is therefore:
Does the legal structure genuinely operate as a rental, or can a rental-to-own agreement function economically like credit while avoiding protections that may apply to regulated credit agreements?
This is not an accusation that any particular company has acted unlawfully.
It is a question that deserves proper investigation.
The National Credit Act regulates certain forms of credit and provides a framework intended to promote responsible credit and consumer protection.
The National Credit Regulator and other consumer-protection institutions have an important role in ensuring that vulnerable consumers are not unfairly exploited.
South Africa's laws must also keep pace with modern financial products.
A financial arrangement should not escape scrutiny simply because it is given a different name.
“Nobody is forcing consumers to sign”
One possible response is that consumers enter into these agreements voluntarily.
But the question of choice must be considered in the context of economic reality.
A person looking for employment may need a smartphone.
A small business owner may need WhatsApp to communicate with customers.
A young person may need internet access to search for work.
A parent may need a cellphone to communicate with schools and family members.
If that person cannot afford to buy a phone cash and does not qualify for a traditional contract, what meaningful alternative do they have?
They may be choosing between an expensive payment arrangement and having no cellphone at all.
That is where consumer vulnerability becomes important.
A person may technically sign an agreement voluntarily while having very limited bargaining power.
The questions regulators should answer
InsightJoziNews.org believes that the broader cellphone rental and rent-to-own industry deserves closer scrutiny.
Regulators should consider asking:
- What is the actual cash price of the cellphone?
- What is the total amount paid during the rental period?
- What is the final cost of ownership?
- How much more does the consumer pay than the original cash value?
- Is the total cost clearly displayed before the consumer signs?
- Are consumers focused primarily on the monthly instalment rather than the total cost?
- What happens when a consumer misses a payment?
- Can access to the device be restricted?
- What happens if the phone is stolen?
- What happens if the device becomes defective?
- Does the consumer continue paying after losing access to the device?
- Is the final purchase price reasonable?
- Are financially vulnerable consumers paying substantially more than consumers with stronger credit profiles?
These are legitimate questions.
They deserve clear answers.
The 300% question
If a cellphone worth approximately R3,000 results in a consumer paying approximately R9,000 in rental payments, the public will naturally ask whether the consumer is effectively paying several times the value of the original product.
However, it is important to distinguish between the total cost of a rental agreement and interest charged under a traditional credit agreement.
Not every payment made under a rental agreement is necessarily legally classified as interest.
That distinction matters.
But the legal classification should not end the public debate.
The real issue is the total economic cost to the consumer.
If a financially vulnerable consumer pays several times the cash value of a cellphone and still does not automatically own the device, regulators should examine whether the arrangement provides adequate consumer protection and whether the pricing is fair and transparent.
The question should not simply be:
“Is it legal?”
It should also be:
“Is it fair?”
South Africa cannot build an inclusive economy by making poverty more expensive
South Africa regularly speaks about financial inclusion.
But financial inclusion should not mean giving poor people access to expensive financial products while wealthier consumers enjoy cheaper options.
Access is not automatically inclusion.
Affordable access is inclusion.
If a person is excluded from conventional credit and then offered an alternative that could cost them significantly more, South Africa must ask whether the system is genuinely opening doors — or simply charging a higher price for entry.
Businesses have the right to make a profit.
Companies also face risks when providing goods to consumers.
But vulnerable consumers also have rights.
The poor should not become a captive market.
They should not be treated as people who can only access essential technology by paying a financial penalty for their financial circumstances.
The question South Africa must confront
If a consumer can afford to pay thousands of rand over a year for a cellphone, why are they denied access to more affordable financial products?
If the consumer is considered too risky for a traditional credit agreement, why is it acceptable to charge them substantially more for access to the same basic product?
And if the total cost is several times the value of the cellphone, is the arrangement genuinely providing affordable access — or has the consumer simply been given a more expensive route to the same product?
These questions deserve answers from regulators, lawmakers and the companies operating in this space.
Because in a country where millions of people already struggle to survive, the last thing consumers need is a system in which:
The less money they have, the more they are charged for access to basic technology.
By Noko Maleka
InsightJoziNews.org
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