Sa-Dhan Newsletter Volume 3 Issue 2

Microfinance Regulation

Complaints and Enforcement

credit needs of the poor was not to introduce subsidised

The Complaints cell operates through its call centres, and a

loans, but to provide respectability to any kind of lending to

set of investigators. Complaints of malpractice received at the

poor, and regulate it closely. The overall approach of the

call centres are investigated by a set of accounting and legal

government in SA has been to mainstream the microfinance

firms, to whom investigations are outsourced. These firms are

sector, and allow equal access and opportunity to everyone.

located in different regions in South Africa.

Research on over-indebtedness

One of the problem areas that has been closely studied

There is also a disciplinary committee chaired by a senior

through a specially instituted research, was that in the

advocate along with two directors of MFRC that holds hearings

phenomenon of over-indebtedness by the poor. The research

on the complaints. The lender is also able to present his case

revealed that the salaried class at the lower rungs tended to

in these hearings.

be over-indebted because of the income security. They were

more prone to fall prey to mechanisms like retention of bank

In case malpractice is proved, the committee can even cancel

cards and deduction from payroll. These results are then

the registration of the lender and stop his microfinance

disseminated through the education events.

operations, although that would be an extreme action. Out of

the 34 cases that were heard till August 2001, only one case

Communication with lenders and other stakeholders

resulted in de-registration of the lender. The others attracted

The annual micro-lender workshop is quite a popular event

fines ranging from R1000 to R25000. The common types of

conducted by the MFRC. This provides an opportunity for the

complaints that were received were getting signatures on

lenders to interact closely with the regulators, and share

blank documents, non-disclosure of loan details, retention of

concerns. Similarly workshops are also organised for auditors

bankcards, deduction from payroll etc. Some of these reminded

and compliance officers of micro-lenders.

me of the practices

followed by many chit funds in South India.

CONCERNS

OTHER ACTIVITIES OF MFRC

As Paxton shared, even though MFRC is an objective regulator,

it is also a stakeholder in the industry and they do have a

National Loans Register

number of concerns.

The thrust of regulation is consumer protection. Thus the

focus is on maintaining transparency, restricting fly-by-nights,

Over-indebtedness of low income salaried groups

providing a strong forum for redressal of consumer grievance

This is an area of major concern that led MFRC to take up

and enhancing consumer choice. But the creation of the

a special research study. There are a number of

National Loans Register (NLR) was aimed at some sort of

recommendations in the study aimed at introducing new

rationalisation of consumer behaviour. This register is a

products for this class of people, that the lender could adopt.

computerised storehouse of the details of all the loans

MFRC also lists the names of all the clients in the NLR,

advanced by the registered lenders. Lenders who want to

helping the lenders choose their clients carefully.

know about the history of a particular consumer can access

the Register. The NLR is an effort aimed at curbing over-

lending, reducing over-indebtedness that might lead to bad

Non-registered lending activity

debts.

There are still a substantial number of lenders who do not

fall under the purview of the MFRC just because they have

Consumer Education

not registered themselves. They are illegal, but as of now

Providing information to consumers on the activities of the

MFRC has no wherewithal to seek them out and bring them

Council, equipping them with financial skills that would

to book. A rough estimate was that about R2-3 billion worth

enable them make sound financial decisions, etc are a major

of business might be happening in highly dispersed

part of the overall strategy of MFRC for the sector. Even

transactions in the countryside. This is a matter of serious

though this may not bear fruit in the short term it is strongly

concern for MFRC and they still have not figured out a

looked at as a long-term mechanism to rationalise the

strategy for dealing with this issue.

microfinance sector. MFRC proactively uses the radio, TV and

print media to disseminate information aimed at consumer

Permission to take savings deposits

education.

A major concern of the Indian MFI industry is getting access

to low cost funds for lending. Paxton also echoed this as a

Fifth, the NLR is a good idea, but very complicated to

ruling concern there. As he said, most of the micro lending

implement, because of the sheer size of the market. But if

happens in the realm of consumption but very few loans go

something of this nature could be done, may be at the State

towards micro-enterprises and housing. The main reason is

level, will help maintain a minimum quality of lending.

the high rates of interest for micro-loans. Here he expressed

the need that the micro-lenders be allowed to take savings

Sixth, a major lesson for the government in India, will be not

deposits from the clients. MFRC has taken this up as a major

to interfere in lending operations by introducing subsidies.

issue for advocacy with the government.

The reaction of the SA government to address the unmet

7