Wonder Hlongwa
The growth of loan sharking to a R10- billion business in South African cities has prompted the Department of Trade and Industry to intervene and regulate the business.
The proposed regulations, to be published by Minister of Trade and Industry Alec Erwin later this month, will be incorporated in a revision of the existing usury Act.
Since the inception of the Act in 1992, the micro-lenders have enjoyed the luxury of deciding their own finance charges when granting loans.
The new proposal requires that there be maximum finance charges. These will be decided by a regulatory institution, which will be approved by the registrar of the Act.
The proposal will prohibit the use of clients’ bank cards and pin numbers by loan sharks as well as the use of violent, illegal or unethical methods of debt collection.
It will oblige micro-lenders to provide a written disclosure of contract – specifying the rand amount and finance charges.
Despite the high interest rates charged by micro-lenders, they are supported by thousands of people who do not have access to money from the formal banking sector.
“The almost 280% increase [last year] in the total turnover to R10,1- billion for the micro-lending industry was calculated conservatively,” said Piet du Plessis of the University of Stellenbosch’s department of business management.
“It is possible that the real amount could be much higher.”
Du Plessis was commissioned by the Association of Micro-Lenders to evaluate the growth potential of the industry.
His report stated that “23,5% of micro-lenders … allocate between 401 and 2 000 loans per month. This … translates to a turnover of between R450 000 and R1,2-million a month.”
Like many regular loan shark clients Nhlanhla Mwelase is happy to make use of the micro-lending service, despite being trapped in a debt spiral.
“Since I started [borrowing] about eight months ago, I haven’t stopped,” says Mwelase. “I go there [to the loan sharks] almost every month.”
Mwelase says it is tempting to spend money randomly because he knows loan sharks will “definitely” make up the shortfall.
His bank card, identity book, payslip and other personal details are in the possession of the loan sharks.
“When I get paid they take almost half my salary,” he says.
Phillip du Plooy, the managing director of the Association of Micro- Lenders, welcomes the department’s proposal to regulate the industry.
The outstanding issue is the retention of bank cards by loan sharks, but the association is negotiating with the banks over alternative methods of debt collection.