The case for microlenders – legal ones that is
By Alec Hogg
I spent yesterday morning at a presentation by Econometrix's MD Rob Jeffrey, learning about the travails of SA's microfinance sector. And had my eyes opened. Wide. For the past seven years microfinance operators – they're the legal ones, members of the official association MFSA – have had no increase in the cap on allowable admin fees and interest rates. The law says the cap must be reviewed every three years. But that's not the real issue. Rather, it's the unintended consequences.
MFSA's chief executive Hennie Ferreira says he commissioned Jeffrey to produce independent research to illustrate the impact of this bureaucratic neglect. A year ago his membership represented entrepreneurs operating 2 200 outlets. That's now down to 1 500. No great loss, I hear you say. They're microlenders after all, people who prey on the poor, lend them money at interest of 5% a month. Except that MFSA members aren't the bad guys. They stick to the law. They fill a real need.
Closing their doors simply sends the ever present borrowers down the food chain. Into the clutches of an estimated 50 000 "informal" microlenders (aka loan sharks) who couldn't care a fig about usury rates. And whose only caps are those their debt collecting hoods wear when tracing down slow payers. Hopefully sanity will prevail.
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