Marianne Merten
A new report on moneylending in South Africa questions the effectiveness of the recently established Micro Finance Regulatory Council to regulate the R15- billion industry often accused of widespread malpractice.
A Black Sash report says new measures have downscaled moneylending to a consumer issue which addresses neither the unwillingness of the formal banking system to provide services nor the potential debt traps.
“The socio-economic impact has been ignored by policymakers. The government has chosen to address the problem of moneylending as an issue of consumer credit. This ignores the reality that access to credit for the poor is integral to the ongoing debate about poverty alleviation.”
The Black Sash is concerned the Micro Finance Regulatory Council (MFRC) does not have the capacity to enforce regulations because it overemphasises consumer education and considers consumer protection as secondary.
“The MFRC does have in place a call centre to record borrower complaints. Unfortunately it does not have any means to investigate such complaints. Even if the capacity were in place, a complaints-driven process is problematic.”
The council’s acting chief executive officer, Neville Zar, rejects these claims. He says the 30-strong Johannesburg-based team is equipped to deal with complaints and enforce regulations. The council has also started a public awareness and education drive.
Lender registration is under way, and so far 4 500 outlets, mostly from Gauteng, have registered. Zar says the estimate of 30 000 lenders operating in the country is overstated.
The Association for Micro Lenders and Associated Consumers, represented on the council’s board, shares some of the concerns about its ability to control the industry. Says its director Henk Vivier: “The law should give more powers to the MFRC and the ability to enforce its good intentions. At this stage it cannot protect consumers.”
Zar insists there are sufficiently strong penalties to ensure compliance in the industry. The council can impose a fine of up to R25 000, a warning, deregistration and/or the reimbursement of the borrower to a position before the complaint. It can also ask for independent reports on loan contracts and other details, or hold on- site inspections.
One of the key failings identified by the Black Sash report and other organisations is that the council can only take steps against errant lenders on cases after September 15, when the new rules came into effect. Cases before this date must be passed on to other authorities, like the Department of Trade and Industry. But, says Zar, the council will refer borrowers and follow up grievances.
The Black Sash report points out, however, that since 1992 not a single prosecution has been brought.
This leaves people like Knysna municipal worker Geoff Jeku still at the mercy of moneylenders. In September Jeku told his story in the Mail & Guardian of months of spiralling debt as he had to approach new moneylenders to repay others and put food on the table for the five people he supports. Since then one of the moneylenders has withdrawn about R4 000 from his bank account. His bankcard has yet to be returned to him.
Initially the lender refused to hand over any documentation when Jeku attempted to have the company investigated. After the Black Sash advice office intervened, a handwritten statement detailing repayments was obtained. A copy of the loan contract is still missing.
The Department of Trade and Industry recently appointed 24 officials after training which, it says, will enable them to enforce the rules. Prosecutions will be handled by the directors of public prosecutions.
The report also points out that the new regulations do not deal with court procedures which are being abused by moneylenders and debt-collecting agencies to reclaim debt.