Chasing moneylenders out of the temple was fairly easy compared to the South African government’s task of trying to regulate the moneylending industry.
The bulk of what are politely called “micro-lenders” – but which are often little better than loan sharks who have long bled dry the poor and desperate – have failed to meet a legal deadline to register with the Micro Finance Regulatory Council. Hundreds of thousands of people with no access to credit from the big banks are forced to rely on the industry, yet it is almost totally unregulated. And recent attempts to restrict its more unsavoury activities have been handicapped by the courts.
Defiance of the law by moneylenders raises questions about the government’s ability to enforce the new legislation, as well as heightening fears that large parts of the industry will go underground rather than comply with the regulations.
The micro-lending industry has flourished as just about the only access to credit for poor people. But increasing numbers of customers find themselves in a debt trap.
Research by University of Stellenbosch Professor Piet du Plessis found that about 70% of borrowers from micro-lenders are taking out new loans to pay off old ones.
The micro-lending industry is so unregulated no one knows how many operators there are, although there is general agreement that the industry is worth billions each year.
Mainstream banks are sniffing around the edges of the industry. However, such bigger players are likely to cream off only the upper end of the industry, leaving riskier and less profitable borrowers – the very poor – out in the cold.
An exemption to the Usury Act frees micro-lenders from the maximum interest rates stipulated in the Act. The exemption is intended to allow small enterprises access to credit in an arena where the mainstream banks are loath to lend money. However, the result has been an explosion in consumer borrowing.
Industry experts consider interest rates of 30% to 40% per month to be fairly standard for micro-lenders. This translates into an annual interest rate of more than 2 000%.
Some micro-lenders have resorted to the legally dubious tactic of taking the personal identity numbers and ATM cards as well as identity books of clients. The terms and conditions of at least some of the banks make it clear that ATM cards belong to the bank, not the user. Theoretically, this would place banks in the situation of being able to demand their property – the ATM cards – back from moneylenders. The Banking Council urgently needs to take action to prevent the abuse of its property.
Whatever legislation is finally instituted, and whatever regulations micro-lenders agree on for their own industry, will make little difference if enforcement fails. However, the Black Sash says it has been told that there are only two Usury Act inspectors in the country – and that they have not brought a prosecution since 1992.
The system of justice should also be scrutinised. It is common for individuals who fail to fulfil their loan agreements to have garnishee orders issued by magistrates, which deduct payments from salaries before the individual receives it.
Lawyers say that while there is no limit on the proportion of someone’s salary which can be garnisheed, magistrates do have a duty to be reasonable in granting these orders.
But Duncan Marsh of the Black Sash has encountered many cases where magistrates not only fail to inquire into the circumstances surrounding the loan agreement – often borrowers are required to sign blank forms – but also appear to fail to apply the reasonability test. A situation where the greater proportion of someone’s salary is deducted to pay moneylenders, with the consent of magistrates, is untenable.
Sipho Bavuma, Department of Trade and Industry deputy director for consumer affairs, says the lack of a limit on such orders is “one of the critical problems” the government faces in attempting to protect consumers.
Similarly, the South African Police Service needs to clamp down on micro- lenders taking guns as security for loans, and other criminal actions such as assaults on those who cannot pay on deadline.
The difficulty facing attempts to regulate the micro-ending industry is the overwhelming need of many individuals to borrow money to survive, regardless of the longer-term costs. A telling finding from research conducted by the Black Sash is that 100% of the respondents who used informal lenders had ambivalent feelings towards their creditors. On the one hand, they recognised they were being exploited, but on the other, they needed credit and had no alternative.
The research also found that by far the majority of those interviewed repaid informal money loans ahead of other bills such as school fees and maintenance. The implications are that even the government is losing out financially as borrowers divert any available income to feed their loans.
WE HOPE THAT ATTEMPTS TO REGULATE THIS MOST UNSAVOURY INDUSTRY WILL RESULT IN PROPER PROTECTION FOR THOSE WHO ARE MOST VULNERABLE, AND THAT ALL INVOLVED – MICRO-LENDERS, THE GOVERNMENT, BANKS, EMPLOYERS AND EVEN BRITISH PARASITES SUCH AS THE UNPLEASANT OFFSPRING OF MARGARET THATCHER – WILL ALL TAKE RESPONSIBILITY TO ENSURE THIS.