Chicago Tribune - December 1, 2003
Laurie Goering, Tribune foreign correspondent

Soon afterward, however, while applying for a car loan, the couple acknowledged they were HIV-positive. Since then, the family's good fortune--and its access to financial services--has dried up.

First their car loan was denied. Then, last month, Simphiwe Doro died of HIV complications.

Now, with the family income reduced, Doro worries about the house being repossessed if he no longer can pay the mortgage. He'd like to buy life insurance to protect the couple's two young HIV-negative children. But premiums are high and payouts small for anyone with the deadly virus.

"I worry a lot about this debt. My wife was quite OK, like me, but she suddenly fell ill and died," said Doro, 39, an organizer for South Africa's National Association of People With AIDS. "If anything happens to me the house will be gone."

Since the end of apartheid a decade ago, South Africa has struggled to expand the availability of basic financial services to millions of people who have never had a checking account, a life insurance policy or a car loan. But the nation's AIDS epidemic, one of the largest in the world with more than 1 in 10 South Africans carrying the virus, is sabotaging that effort and creating frustrating new tensions among those offering, demanding and overseeing financial services in the country.

Banks, faced with mortgage defaults as bondholders die of AIDS, are saddled with the politically and morally awkward task of evicting widows and orphans from repossessed homes. AIDS mortality has driven individual life insurance policies beyond the reach of those who need them most and helped cause savings rates to plunge.

Increasingly the government finds itself caught between protests demanding non-discriminatory financial services for the HIV-positive and fears that pressuring banks to provide loans to the most financially tenuous South Africans could jeopardize the country's financial system or necessitate expensive bailouts.

"Nobody expected AIDS to come as quickly as it did and be as devastating as it is," said Mike Van Rooyen, head of Servcon, a joint government and banking industry agency trying to resolve loan default cases in South Africa's black townships. "These are trying times for financial institutions as they come to grips with how to service the lower end of the market."

AIDS has become a heavy burden on Africa's economies, including that of South Africa. The disease has slowed GDP growth, produced growing workforce turnover, sent health-care costs skyrocketing, cut into companies' customer bases, kept children out of school and caused family incomes to plunge. A recent university study of rural South African households found that those affected by AIDS earn an average of only $1,800 a year compared with $2,800 for non-affected households.

In banks across South Africa, advertising placards urge customers to "Save for your funeral," rather than for a first house, retirement or a child's college fund.

But even funeral savings plans are being overwhelmed by the number of AIDS deaths, estimated at more than 600 a day in South Africa.

Economic toll

"AIDS targets the most sexually active group in society. Unfortunately, this is also the most economically active age group in society," noted a banking study released last year on the effect of HIV/AIDS on financial services in South Africa.

Probably the most difficult problem facing South Africa's legions of HIV-positive--and its bankers--is mortgage lending to low-income families, a political priority.

Since the end of apartheid, millions of poorer South Africans have sought standard 20-year mortgages to buy modest township homes, which cost up to $15,000. Under South African banking policy, most borrowers must take out insurance to repay the loan in the event the family breadwinner dies.

Since the advent of AIDS, however, individual life insurance policies have become more and more expensive, particularly for those with the disease. In some cases, the cost of the policy, added onto the mortgage payment, is beyond the borrower's financial capacity. As a result, a growing number of families--like Doro's--now have mortgages unsecured by anything but their home.

That means that when the family breadwinner dies, banks have little choice but to evict the surviving family members, a tricky maneuver in a nation where a family home is seen less as an asset and more as a political right the government should guarantee.

"The biggest challenge facing the banking sector is the moral issue of evicting families and relatives of AIDS victims," wrote Christo Luus, the leading economist for Absa Bank, in a study released last year.

Over the last decade, the banking industry has worked with South Africa's government and non-profit groups to help 18,000 borrowers in arrears--most of them participants in apartheid-era payment boycotts--find new jobs and catch up on their payments or find alternative modest accommodation if they cannot hold onto their mortgaged homes.

But the size of the country's AIDS epidemic will overwhelm such efforts unless the government is willing to commit broad new financing for them.

One answer, according to Tjaart Esterhuyse, an actuary at Metropolitan Employee Benefits Risk Solutions, may be to impose a separate, mandatory $15,000 life insurance policy on all mortgage loans in South Africa, effectively creating a large nationwide pool of rich and poor--as well as HIV-positive and negative--borrowers. By pooling risk, such insurance could be made affordable to those with HIV.

Under such a plan, which is still in the discussion stages, any borrower who died could have the balance on his or her house--up to $15,000--paid off by the fund, a small benefit for richer borrowers unlikely to need such help but a huge one for the poorest South Africans and those with HIV/AIDS.

AIDS activists, who last week waged a series of protests and sit-ins at Johannesburg banks demanding new protections and services, say that is exactly the kind of policy needed by the more than 5 million HIV-positive South Africans.

'We're suffering'

"Right now we're suffering when we go to these companies. There's no way to protect our children. We need policies that help us," said Linda Nika, 38, an Eastern Cape province activist who participated in the demonstrations last week.

Dealing with AIDS also may require bankers to rethink the length of mortgages, put tougher limits on the size of loans and create education campaigns designed to explain the obligations and risks of mortgages more explicitly to first-time borrowers, financial experts say. The government also may need to take a larger role, perhaps by creating some kind of guarantee fund, if it wants to continue its push for the expansion of private financial services to borderline borrowers, experts say.

AIDS activists say that whatever happens, they need to end up with more access to financial services rather than less.

Banks "need to find a way of meeting us halfway," Doro insisted.

"If you have 5 million people in the country excluded from the economic activity of the country, it means the economy itself is losing something," he said. "It means we are excluded from building the country."

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