South African Microlending Watchdog Recovers $400,000 From Lenders

Borrowers have recovered over R2.5m ($400,000) from microlenders as the Micro Finance Regulatory Council tightens the screws on illegal lending practices, and intensified consumer education lead to more aware borrowers complaining to the Council’s Complaints and Enforcement Division.

“It’s exciting that our efforts are paying off in such a big way and that we can report significant payback in refunds and balance adjustments to consumers,” says Paxton Ramothata, Manager Complaints and Enforcement. “Last year we recovered R2.5m over the entire 12 months. This year we’ve surpassed that in the first nine months.”

Ramothata reports an improvement in standards in the microlending industry, but says there are still areas of abuse “and that is where we come in and obtained refunds for consumers and adjustments on loan balances,” he says.

Overcharging on interest rates and over deducting of instalments are the more common infringements the Complaints and Enforcement Division is called in to investigate and act on. Violation of the prescription law which makes a debt defunct after three years is also enforced by the division when lenders attempt to collect on loans made after the expiry of the prescription period.

The Division is also cracking down on unregistered lenders, most of whom “are charging interest rates above the stipulations of the Usury Act. We challenge them and they recalculate interest charged and refund their clients the difference,” he reports.

The MFRC’s operation works both proactively through random compliance checks on lenders such as “blitzkriegs in certain towns”, and reactively on complaints received.

Ramothata believes that the increase of recovered funds is due in part to a rise in the amount of money lent industry-wide, and to the fact that the MFRC’s education campaign on borrowers’s rights is taking effect. Borrowers now understand their rights better and complain when they are violated.

“The volume and the quality of the complaints, compared to this time last year show an interesting correlation,” he says. “While the number of complaints is down, they normally pertain to real contraventions and that makes recovery more effective.”