Loan sharks are posing a threat to South Africa’s micro-finance industry by charging people interest rates of 100% and more, the Consumer Profile Bureau said on Monday.
”They leave the perception in the market place that all micro-lenders, including the legitimate ones that are registered, operate the same,” said Fredd Steffers, MD of the Consumer Profile Bureau. ”This makes people reluctant to go to micro-lenders for loans, thinking they all use the same modus operandi.”
Steffers said although the activities of loan sharks will be criminalised by the new Credit Bill, police are finding it difficult to act against them.
”These loan sharks thrive on poverty and illiteracy, and often the people being exploited by them are afraid to complain to the police because they are afraid of being beaten up or, even worse, killed.”
The Credit Bill, which is still to be passed into law, aims to regulate or cap the amount of interest micro-lenders can charge their clients.
Steffers said many of people serviced by loan sharks have bad credit records and had difficulty borrowing money from legitimate micro-lenders.
The Micro-Finance Regulatory Council (MFRC) said on Monday that it is making progress in fighting crooked micro-lenders as borrowers become increasingly aware of their rights.
”For example, there’s what we call the cooling-off period where a person can borrow money, [pay] it back in 30 days and be charged no interest,” said Steffers.
MFRC legal services head Jan Augustyn, said raids and formal investigations into suspected micro-lending operations are yielding better-than-expected results in the number of unregistered micro-lenders prosecuted in court and repayments to borrowers.
Since July 2000, the MFRC has conducted 1 260 formal investigations into the affairs of micro-lenders, he said.
Last year, about R3,2-million was paid back by lenders to borrowers after intervention by the MFRC’s complaints department. — Sapa