(Johannesburg, South Africa, 26 August 2024) As the South African economy continues to face challenges, consumers are increasingly turning to credit providers to manage their financial needs. However, many are unaware of the stark differences between legal, registered credit providers and the dangers posed by illegal lenders.
MicroFinance South Africa (MFSA) is calling on consumers to prioritise using regulated credit providers, emphasising the need for sustainability within the lending sector through an urgent review of the rates and fees charged by these providers.
"Registered credit providers operate within a strict regulatory framework that ensures consumer protection, affordability, and fairness," says Leonie van Pletzen, Chief Executive Officer of MFSA. "These providers are bound by the National Credit Act and must comply with affordability regulations that safeguard borrowers from over-indebtedness, offering transparency in interest rates, fees, and repayment terms."
Van Pletzen explains that legal credit providers operate with professionalism, transparency and accountability, adhering to the same rates and regulations as banks. These regulated institutions are obligated to perform comprehensive credit checks to ensure that borrowers can afford the loans they apply for. "This compliance ensures that consumers are not only protected, but are also offered fair and responsible credit options that contribute to their financial well-being," she adds.
In contrast, illegal credit providers, often referred to as mashonisas, operate outside the law and are not subject to any of the protections or oversight that registered lenders must follow. They often charge exorbitant interest rates, impose hidden fees, and use aggressive and unethical collection practices.
"These unregulated lenders exploit consumers, driving them into a cycle of debt from which it is difficult to escape," warns van Pletzen. “Individuals may find themselves in the unfortunate situation where most of their earnings go into repaying loans every month, and are unable to sustain this.”
Despite the risks, many consumers are being forced into the hands of illegal lenders due to the unsustainable conditions facing the formal microfinance industry.
"The last review of the rates and fees charged by registered credit providers was nearly 10 years ago, and since then, the cost of doing business has risen dramatically," explains van Pletzen. “According to the NCR website almost 4 000 credit providers lapsed their NCR registrations. Many of these providers may still be operating, potentially illegally, putting more consumers at risk."
MFSA is advocating on behalf of its 1 500 members for a much-needed review of the rates and fees charged by registered microfinance providers to ensure their businesses remain sustainable and competitive with the illegal market.
"If legal credit providers are not able to cover their costs and operate profitably, they will be forced to turn away more consumers, driving them directly into the arms of unregulated lenders," says van Pletzen. "We need a credit sector that is both responsible and sustainable - one that provides consumers with the access to credit they need while protecting them from exploitation."
MFSA continues to champion the professionalism of the microfinance sector, working closely with the NCR to ensure compliance and consumer protection. The association also plays a pivotal role in raising awareness of the risks associated with illegal lending and the importance of engaging only with registered credit providers.
"We urge consumers to verify that their credit provider is registered with the NCR before taking out any loans," concludes van Pletzen. "Registered providers operate transparently, charge fair rates, and ensure that borrowers are treated with respect and dignity—qualities that are all too often absent in the illegal market."
Ends
About MicroFinance South Africa
MicroFinance South Africa is the largest microfinancing association in South Africa that represents over 1 500 registered and legal microfinance credit providers, and service providers to the industry. Over the past 27 years, it has remained focused on its vision to ensure a sustainable microfinancing industry and has continued to expand its footprint, presence and impact.
MicroFinance South Africa is a community of individuals and organisations that are dedicated to enhancing consumer confidence in micro-finance by ensuring professional, legal, and ethical conduct. The MFSA has established a Code of Good Practice as a voluntary standard to which its members have agreed to adhere.
For further information contact:
Claire Watt | Ntokozo Kalako
The Friday Street Club
Tel: 082 490 3796 | 067 610 6879
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