Micro-lenders accuse government of ignoring recommendations for regulating the industry, writes Sechaba ka’Nkosi A row is brewing between a coalition of small-scale development lenders and the government for ignoring proposals that could save millions of consumers from rampant exploitation by money lenders.
The Alliance of Micro-Enterprise Development Practitioners singles out the departments of trade and industry and finance for refusing to heed its advice on a problem that could condemn most South Africans to life-long debt. The alliance says weeks after it submitted a thoroughly researched paper on the regulation of consumption loans, the government has not yet responded, despite the fact that Minister of Trade and Industry Alec Erwin called on stakeholders and the public to make submissions on the review of the Usury Act last year.
The Act provides for the exemption of small-scale borrowers from regulations that govern deposits and loans at financial institutions. The alliance says this gives a free rein to loan sharks who often make huge profits at the expense of consumers. The loan sharks are said to be making an annual turnover of close on R5-billion a year, after charging unsuspecting consumers and mainly low-income borrowers interest rates of up to 30%. A senior official of the alliance says on a loan of R1 000, the consumer ends up paying more than R4800 by the end of the contract period, usually 12 months.
“This is a sheer rip-off. While we are not calling on the government to outlaw these institutions, we want it to come up with a regulatory framework to control them. Banning them can force the loan sharks to go underground and make more than they are doing on the surface,” says the official, who refused to be named.
In the short term, the alliance wants micro-lenders to regulate themselves; longer term, it is calling for an independent authority, including government representatives, established financial institutions and participation from relevant stakeholders.
David Porteous of the National Housing Finance Corporation says this proposal seeks to compel micro-lenders to register at a fee and, therefore, grant them automatic access to exemption from the Usury Act. Porteous says this will make it easier to draw up a code of conduct and monitor practices and complaints from consumers. “We have already raised funds for an infrastructure that would deal with the registration. What we want the government to do is to underwrite the costs because it also has a political obligation to protect consumers.”
Executive director of the alliance, Sharda Naidoo, says while it might prove too expensive for the state to monitor all the practices in the industry, it also cannot sit back and allow people to be exploited at will.
“Micro-lending is a phenomenon that no one can wish away in our country. What we need is a clear framework that puts everyone under a common code. That way you would be able to expel people who do not subscribe to the given discipline and, therefore, cut them out of exemptions,” says Naidoo.
Both the trade and industry department and the Reserve Bank were unavailable for comment at the time of going to press. But the small-time lenders insist the ball in now in their court.