Although prices and everything else have gone up, salaries did not keep up and neither did the requirements to qualify for credit.
Illegal lenders are having a field day as punch drunk consumers turn to them because they do not qualify for credit according to rules that have been in place for almost a decade.
Therefore, if we want to stop illegal lenders, we have to review the credit rates.
Leonie van Pletzen, CEO of MicroFinance South Africa (MFSA), the representative body for the microfinance industry, is urgently calling for a fair and sustainable review of credit rates and fees under the National Credit Act, saying a review is critical for unlocking financial inclusion, stimulating economic growth and sustaining the formal credit provider industry.
“Despite increasing demand, over 13 million South Africans are rejected every quarter when they apply for credit under the current credit pricing constraints. This is deeply concerning, considering that short-term, unsecured credit is used for key developmental purposes.”
ALSO READ: Denied credit although you qualify? Blame non-compliant credit and data providers
What consumers use credit for (if they can get it)
She says MFSA’s research shows that consumers use 18% of credit to fund education, while SME owners use 14% of credit to establish or grow their businesses, and consumers use 9% for housing.
The data also reflects that over 40% of credit-active South Africans are considered high-risk borrowers due to low credit scores or over-indebtedness.
“These exclusions push vulnerable consumers into the illegal credit market, where they are charged interest rates as high as 600% per year, which often results in them entering a debt spiral.
“Outdated and inadequate rate and fee structures, unchanged since 2015, are putting smaller and developmental credit providers under increasing strain.
“Many of these providers operate in rural and township economies, serve the owners of SMEs and reach first-time borrowers who would otherwise be excluded from the financial system.”
ALSO READ: Outdated lending caps driving borrowers to loan sharks
More access to credit if qualifying rates are reviewed
MFSA’s data-driven analysis highlights the scenarios where adjusted rates and fees would directly expand access to safe, legal and affordable credit for consumers:
- Reducing rejection rates: Currently, 72% of credit applications are rejected, but by aligning initiation and service fees with inflation trends since 2007, rejection rates could drop to 55%. Van Pletzen says this translates into 3.1 million additional credit approvals per quarter, enabling more South Africans to access regulated credit instead of being excluded from the formal market.
- Competing with the illegal market: The illegal lending market thrives on exclusion, charging vulnerable consumers up to 600% annually. Van Pletzen would like to see the government adjust fees to reflect the real costs of compliance. “Credit checks, banking transaction fees, FIC and KYC requirements and responsible lending protocols would enable MFSA members to serve more consumers sustainably, reducing reliance on exploitative lenders.”
- Stimulating economic growth: Expanded credit access is not just about consumption, she says. Research shows 40% of short-term unsecured loans fund developmental purposes such as education, housing, healthcare and small business growth. Depending on the adjustment scenario, the economic stimulation impact ranges from R168 billion to R357 billion per year. This injection would directly benefit township economies, drive job creation and provide opportunities for South Africa’s youth.
- Supporting compliance and consumer protection: Current fee caps do not cover the true costs of compliance, making it harder for credit providers to remain within the law while serving excluded consumers. A realistic adjustment would allow providers to remain compliant and expand access responsibly, ensuring financial inclusion goes hand in hand with consumer protection, Van Pletzen says.
ALSO READ: Why consumers have too much month left at the end of the money
Why R357 billion matters
She says the upper range of MFSA’s analysis shows that a balanced review could deliver up to R357 billion in annual economic stimulation that would result in:
- Greater access to credit for individuals and small businesses
- Expanded developmental finance opportunities
- Boosted township and local economies through small enterprise growth and
- Empowered youth and future generations with access to affordable finance for education and entrepreneurship.
“Reviewing rates and fees is not self-serving; it is an inclusion measure. If we want to close the credit gap, protect consumers from illegal lenders and stimulate real economic growth, the regulatory framework must empower sustainable lending., Van Pletzen says.
“By expanding financial inclusion, we can strengthen households, grow businesses and build a more inclusive South Africa.”
