Outdated Credit Rules Are Pushing South Africans to Loan Sharks, Warns MicroFinance Body

MicroFinance South Africa is sounding the alarm over outdated lending fee caps that are making it nearly impossible for vulnerable borrowers to access regulated credit—forcing many to turn to dangerous informal lenders.

MicroFinance South Africa (MFSA) has called on lawmakers and regulators to urgently reform the country’s credit regulations, warning that lending caps that haven’t changed since 2015 are placing both borrowers and the formal microfinance industry in jeopardy.

A recent study by research firm 71point4 Consulting found that nearly 60% of people denied formal loans end up borrowing from unregistered loan sharks, or mashonisas, who often charge interest rates as high as 50% per month. These illegal lenders frequently use coercive practices, such as holding onto ID documents or bank cards as collateral.

“When regulated credit is unavailable, people don’t stop needing finance — they turn to the shadows,” said Leonie van Pletzen, CEO of MFSA.

Development Loans in High Demand — But Out of Reach

More than 40% of those seeking loans are doing so for developmental purposes, such as education, small business growth, or home improvements. Yet rigid price caps under the National Credit Act are making it unviable for many formal lenders to serve low-income and rural communities.

“Fairly priced credit unlocks opportunity,” said Van Pletzen. “For an entrepreneur, it means buying stock. For a parent, it means paying school fees. For a household, it means fixing a leaking roof.”

MFSA argues that credit regulations must evolve with the economy. With inflation and operating costs rising, formal credit providers are struggling to remain viable under outdated caps. Over 70% of loan applications are now declined—particularly those from first-time and rural borrowers.

A Looming Crisis for Borrowers and Lenders Alike

“If these issues aren’t addressed, we’ll see more lenders exit the market, and even fewer South Africans will have access to safe, affordable credit,” Van Pletzen warned. “This isn’t just a business issue—it’s a social and economic one.”

The Just Energy Transition, small enterprise development, and other key national goals rely heavily on grassroots access to finance. MFSA stresses that sustainable credit markets are essential to achieving inclusive economic growth.

Call for Action

MFSA is urging government, regulators, and financial sector leaders to prioritise credit pricing reform as part of ongoing financial inclusion dialogues.

“We cannot build an inclusive economy while ignoring the financial realities of those most in need,” Van Pletzen concluded. “Development finance is the engine of grassroots economic growth. It’s time to ensure that fair credit pricing reflects today’s economic realities.”

{Source The Citizen}

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