Latest news with #NationalCreditAct
The Citizen
4 days ago
- Business
- The Citizen
Report reveals there is no lack of funding for small businesses – here's the problem
Being funding-ready is just as important as funding availability. A report has revealed that there is no shortage of funding for micro, small, and medium enterprises (MSMEs) in South Africa; however, the challenge is that traditional lending models make it more difficult for these businesses to secure approval. The report, titled 'SA MSME Access to Finance Report 2025', by Finfind and African Bank, released on Thursday, supports the belief that change is needed to address the funding gap for these businesses. MSMEs in the country play a significant role as the majority of the workforce is found within the segment. These are businesses with a turnover of less than R1 million per annum. ALSO READ: Finding the right funding option for your small business Addressing funding methods The report stated that the inability of small businesses to secure funding remains a significant barrier to entrepreneurship, business expansion, and broader economic growth in the country. One of the reasons small business owners struggle to secure funding is that they are seen as high-risk without collateral. The report shows that these owners also struggle to access personal finance as most do not have a regular monthly income paid into their personal bank accounts to confirm income and affordability, and the majority have below average credit scores, this is largely due to paying business expenses first to stay afloat to the detriment of their personal credit health. ALSO READ: Here are the dangers of loan stacking for SMEs Most businesses are not funding-ready 'Many MSMEs struggle to access finance, not because funding isn't available, but because they are not funding-ready,' reads the report. Being funding-ready is just as important as funding availability. Darlene Menzies, CEO of Finfind, said there have been multiple calls for the 'Funding Readiness Voucher' programme, where business advisors and small business accountants provide funding readiness assistance to MSMEs. 'The idea was born out of the Presidential Jobs Summit catalytic project in 2018 to bolster job creation for youth and help MSMEs access finance.' Low turnover puts businesses in challenging positions The report stated that the annual turnover of small businesses puts them in a challenging position as far as credit regulation is concerned. 'The National Credit Act (NCA) classifies juristic entities with a turnover of less than R1 million per annum as consumers rather than commercial entities, creating a fundamental challenge when it comes to accessing it,' reads the report. Finfind has noticed that new players are revolutionising MSME financing through streamlined, accessible, and faster loan processing. NOW READ: Tips for SMEs: How to secure a financial boost Recommendations for MSMEs The report also gave some recommendations for MSMEs seeking funding. One of the most important recommendations is for these businesses to maintain proper financial records, establish a formal business bank account and utilise a basic accounting solution. Owners need to present a viable and well-managed operation with transparent fund utilisation and repayment plans. 'Business owners need to explore both traditional banks and alternative fintech options based on specific needs and profile.' Recommendations for funders The report stated that funders need to examine how they assess risk and develop products to meet real demand by utilising the tools, technologies, and data now available. 'It requires commitment to change.' It is also recommended that there be collaboration between traditional banks and fintech companies to leverage respective strengths. Funders need to introduce specialised micro-financing options with appropriately scaled requirements for businesses with a turnover below R1 million per annum. NOW READ: Challenges and opportunities for SMEs in 2025
IOL News
4 days ago
- Business
- IOL News
The legal implications of Buy Now, Pay Later services in South Africa
Explore the complexities of Buy Now, Pay Later services in South Africa, examining the legal challenges and regulatory uncertainties that could impact consumers and providers alike. Image: Shutterstock Buy Now, Pay Later (BNPL) payment options have strutted onto South Africa's financial runway with the swagger of innovation—offering interest-free instalments, bypassing traditional credit checks, and boasting sleek user interfaces that make old-school lay-bys look prehistoric. For consumers, it feels like a dream: swipe today, split it tomorrow. For platforms, it's fintech gold. But beneath the surface of this frictionless façade lies a regulatory grey zone thick with risk, ambiguity, and potential litigation. Is BNPL empowering consumers, or quietly indebting them? And when the legal hammer finally drops, who's left holding the bill? BNPL services allow consumers to make purchases immediately and pay for them in installments over a set period, usually without interest if payments are made on time. However, as BNPL usage increases, so do concerns around consumer debt, regulatory arbitrage, and financial exclusion. The central question in South Africa is whether BNPL products fall within the ambit of the National Credit Act (NCA) or the Financial Advisory and Intermediary Services Act (FAIS Act). The National Credit Regulator is responsible for compliance with the NCA, while the Financial Sector Conduct Authority (FSCA) is responsible for compliance with the FAIS Act. The South African BNLP landscape The consumer credit environment in South Africa is governed by the NCA, which regulates all credit providers and mandates affordability assessments along with other consumer protection mechanisms. BNPL providers often argue that they are not credit providers, as their terms and conditions do not constitute a credit agreement. This is because they charge no interest and operate within a very short payment cycle (e.g. 4 to 6 weeks). As a result, many BNPL firms claim exemption from NCA obligations. According to the Intergovernmental Fintech Working Group (IFWG), BNPL currently falls into a regulatory void. The NCR has taken limited action against providers, while the FSCA has yet to issue clear guidance. Consumers thus face reduced transparency, no guaranteed recourse mechanisms, and inconsistent contract terms. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ BNPL's legal classification determines the scope of regulatory obligations. If BNPL is credit, then the NCA mandates affordability checks, registration with the NCR, and extensive disclosures (amongst other things). However, most BNPL operators avoid these obligations by structuring their offerings as payment solutions or deferred billing. The FAIS Act regulates financial advice and intermediary services. BNPL providers rarely claim to offer financial advice, and as such, FAIS oversight is generally not invoked. This ambiguity causes a jurisdictional conflict between the NCR and FSCA, with little resolution. Moreover, South African consumers are often unaware of potential late fees, the implications of missed payments, or the lack of legal recourse, especially when providers collapse or change terms unilaterally. While legal classification remains unresolved, enforcement action against BNPL providers in South Africa has been minimal. In practice, the NCR's enforcement has focused largely on traditional credit providers, while the FSCA's mandate remains unclear in the absence of explicit statutory triggers. This lack of supervisory clarity raises risks of selective compliance, where only larger players seek legal advice or act preemptively, while smaller or offshore providers bypass South African oversight altogether. Moreover, without designated supervisory frameworks, enforcement becomes reactive, often occurring only after consumer harm has materialised. The Conduct of Financial Institutions Bill (COFI Bill) is envisaged to address these regulatory gaps. A modern regulatory regime must therefore address not only classification and jurisdiction, but also enforcement mechanisms, investigative powers, and co-ordinated oversight, possibly through inter-agency memoranda of understanding or joint supervisory task teams. Without this, regulatory gaps become systemic vulnerabilities. Global BNLP landscape United Kingdom: The Financial Conduct Authority (FCA) will regulate BNPL under new legislation taking effect in 2026. Providers will be required to conduct affordability checks, obtain FCA authorisation, and ensure clear disclosures. Consumers will be granted Section 75 protections under the Consumer Credit Act. Australia: The Australian Securities and Investments Commission (ASIC) has introduced legislation bringing BNPL under the National Consumer Credit Protection Act. From mid-2025, providers must hold a credit license, conduct responsible lending assessments, and comply with disclosure obligations. These requirements are tailored to balance innovation with consumer protection. United States (US): The Consumer Financial Protection Bureau (CFPB) has classified BNPL loans accessed via digital accounts as 'credit cards', triggering protections under Regulation Z. Dispute resolution, refunds, and chargeback rights are now part of BNPL transactions, although industry litigation may reverse this. These models demonstrate that proactive regulation, coupled with flexibility, is essential for managing BNPL risks. Comparative legal analysis of South Africa South Africa's current dual-regulator model (NCR and FSCA) is ill-equipped for the digital fragmentation of modern finance. The lack of a clear BNPL regulatory framework stands in contrast with jurisdictions where regulators have already expanded definitions of credit to include BNPL explicitly. Key takeaways include: The UK's reliance on disclosure and licensing. Australia's focus on credit licenses and suitability assessments. The US approach of function-over-form classification (if it behaves like a credit card, it is regulated like one). The hope is that the COFI Bill will reconcile its institutional gaps and avoid regulatory arbitrage by expanding statutory definitions and enforcing consistency. Fintech partnerships and platform liability BNPL services are frequently integrated directly into online retail platforms via Application Programming Interfaces (API) partnerships. This embedded finance model raises questions of liability, especially when the BNPL provider operates outside the regulatory net. In South Africa, it is unclear whether a platform offering BNPL at checkout could be deemed to be providing or facilitating credit under the NCA. Retailers and marketplaces must consider whether they are indirectly exposing themselves to liability or reputational risk, especially if their BNPL partners engage in misleading conduct, impose unlawful fees, or collapse without notice. Globally, regulators are beginning to scrutinise not just BNPL providers, but also the platforms and merchants who offer such services. The UK's FCA, for example, has signalled that contractual and operational accountability may extend beyond the primary credit provider. South African platforms should pre-emptively assess their BNPL partnerships through the lens of operational risk, consumer protection, and reputational resilience. Digital identity and affordability in a credit-light economy One major challenge for effective BNPL regulation in South Africa lies in consumer verification and affordability assessments. Without a robust credit history or consistent income documentation, many consumers who use BNPL services remain invisible to traditional risk models. This opens the door to over-indebtedness, particularly among the underbanked. Future BNPL regulation must therefore account for the reality of fragmented digital footprints and low formal credit participation. There is room for innovation: open banking frameworks, mobile payment data, and transactional analytics could support dynamic affordability models. However, this would require legal certainty around data access, privacy, and proportional use of financial profiling. BNPL operators who proactively invest in these tools, backed by transparent disclosures and consent practices, will likely be best positioned when regulation catches up. BNPL has redefined consumer finance by promising simplicity and speed, but the country risks repeating mistakes seen in unregulated microcredit booms if it fails to address its regulatory gaps. Global trends show that regulation can evolve in tandem with technology. By embracing reform and cross-sector collaboration, South Africa can lead in creating a safe, competitive digital finance ecosystem. * Lamola and De Meyer are partners at Webber Wentzel. PERSONAL FINANCE
The Citizen
25-05-2025
- Business
- The Citizen
Beware: your overdraft can now affect your credit report and score
If you want to borrow money from now on, your overdraft will be included in your debts to assess your creditworthiness. While some South Africans banks have notified their customers, not everybody knows yet of the recent change in South Africa's credit reporting system, where banks are now required to report overdrafts if consumers are overdrawn by more than R500 for a period of 30 days. This provision of the National Credit Act came into effect on 1 March 2025 and represents a significant shift in how your creditworthiness is assessed, Chris Coetzee, CEO of FinFix, says. 'While this change brings some positive outcomes, it also introduces challenges that could have far-reaching consequences for consumers as well as the broader credit industry.' He warns that by including overdraft usage in credit bureau reports, affordability assessments will become more accurate. 'In the past, overdrafts were often excluded from these calculations unless you voluntarily disclosed it. This meant that lenders were sometimes working with incomplete information when assessing whether a borrower could afford additional credit. 'With overdrafts now included, credit providers can better evaluate a consumer's true financial position, reducing the risk of over-indebtedness. For example, if someone consistently relies on their overdraft to make ends meet, this will be flagged as a potential indicator of financial strain.' ALSO READ: Bank data shows people run out of money long before month end Including overdrafts in credit reports promotes transparency Coetzee says the inclusion of overdrafts promotes transparency, ensuring that all forms of credit use are accounted for. 'This levels the playing field for both consumers and lenders. Credit providers will have a clearer picture of a consumer's financial habits, which may help prevent reckless lending practices. It also encourages consumers to be more mindful of their spending and borrowing behaviour.' Knowing that your overdraft usage will now be reported may encourage consumers to manage their finances more carefully. Overdrafts, which were previously seen as 'invisible' debt, will now carry weight in credit assessments. Consumers may be motivated to reduce reliance on overdrafts and focus on budgeting or seeking financial advice to avoid negative credit listings.' He says credit providers will now also be able to assess risk more accurately, leading to more sustainable lending practices. 'This could result in fewer defaults and a healthier credit market overall. While this might limit access to credit for some people, it ultimately protects both consumers and lenders from the fallout of unsustainable debt.' ALSO READ: This is how SA consumer class is cutting costs Will you qualify for credit if your overdraft is included? Many South Africans who rely heavily on overdrafts may find themselves unable to qualify for new credit facilities. Overdraft usage will now be factored into affordability calculations, potentially reducing the amount of credit they are eligible for. Coetzee says credit-reliant individuals, particularly those who frequently use payday loans or temporary credit facilities, may face financial strain if they can no longer access these options. This could lead to a cycle of financial distress if they cannot find alternative solutions.' Unfortunately, he points out, there will also be some unintended consequences for financially vulnerable consumers. 'Low-income earners or those living payday-to-payday are more likely to rely on overdrafts to cover basic expenses. Reporting overdraft usage could disproportionately affect these groups, as their financial struggles will now be more visible to credit providers. 'These consumers may see their credit scores decline, making it harder to access affordable credit. They may turn to informal or unregulated lenders, which could expose them to higher interest rates and predatory practices.' ALSO READ: How to build a strong credit score to unlock financial freedom Be careful how you use your overdraft However, Coetzee says, this could also lead to potential misinterpretation of many South Africans' overdraft usage. 'Not all overdraft usage indicates financial distress. Some consumers use overdrafts strategically, such as for short-term cash flow management. However, frequent or prolonged overdraft usage could be misinterpreted as a sign of poor financial health. 'Credit providers may place undue weight on overdraft usage, penalising consumers who are otherwise financially stable but use overdrafts as a convenience tool.' He says if overdraft usage is reported negatively, such as an overdue balance, it could harm consumers' credit scores. 'This is especially concerning for those who are unaware of the change and continue to use overdrafts as they did before. A lower credit score could limit your access to affordable credit options, insurance products and even employment opportunities in certain sectors.' ALSO READ: The link between your money mindset and your credit score Staying informed about your credit What can consumers do to stay informed about their credit? Coetzee says with overdrafts now being reported to credit bureaus, consumers must stay informed about their credit status. 'Request your free annual credit report from the major credit bureaus to ensure accuracy and address any discrepancies. If you frequently use your overdraft, consider creating a budget to manage your expenses more effectively. Look for ways to cut unnecessary costs or increase your income to avoid dipping into your overdraft.' He says if you struggle to manage your debt, it is a good idea to consult a certified debt counsellor. 'Debt counselling can help you to restructure your debt, negotiate with creditors and create a sustainable repayment plan. 'Consolidating them into a single loan with a lower interest rate could make repayments more manageable. For those who find themselves struggling, debt counselling offers a lifeline, providing guidance and support to achieve long-term financial stability.'
IOL News
07-05-2025
- Business
- IOL News
Self-employed? Getting a bond is possible if you have a bookkeeper
Around five million self-employed South Africans face challenges securing home loans due to a lack of payslips and the need for official paperwork, while salary earners have seen their spending power drop by nearly 4% over five years as take-home pay growth lags behind inflation Image: Kindel Media/Pexels Around five million South Africans work for themselves, which makes the process of applying for a bond to buy a home tricky as they don't have payslips. While it is possible to get a mortgage, there's still official paperwork required that will generally require employing an accountant or bookkeeper. DirectAxis' research has found that, over the past five years, nominal take-home pay rose by 22.8%. Yet, cumulatively, inflation has increased by 26.6%, effectively reducing salary earners' spending power by nearly 4%. Loan provider DirectAxis' Gavyn Letley, said that, as a result, between 14% and 16% of middle-income households earn additional income from one or more side hustles. Michael-Anne Abrahams, bond originator from MyProperty Home Loans, said there is a concept that, when it comes to getting a loan, particularly a bond to buy a property, those who are self-employed individuals often face disadvantages. 'There may have been a time when being self-employed was a challenge if you wanted to apply for credit or a bond, but these days the process is far more sophisticated and equitable,' says Abrahams. The National Credit Act seeks to 'promote a fair and non-discriminatory marketplace for access to consumer credit', which includes access to home loan finance. However, there's still a lot of paperwork, and entrepreneurs will need either a bookkeeper or an accountant. According to Statistics South Africa, there were 1.9 million non-VAT registered businesses in 2023, up from 1.5 million a decade earlier. This is out of about three million micro-, small-, and medium-sized enterprises in South Africa, the FinScope MSME South Africa 2024 Survey found. 'Informal sector employment accounted for 19,5% of total employment in the fourth quarter of 2024, cementing its status as the second-largest source of jobs after the formal sector,' Stats SA said. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Next Stay Close ✕
The Citizen
03-05-2025
- Business
- The Citizen
Is the interest on your personal loan within legal limits? Here's how to find out
Personal loans and credit cards have a maximum allowable interest rate in South Africa. Although we all watch the increases and decreases in the repo rate with eagle eyes, few consumers know that the rate of interest on their personal loans must be within legal limits. Despite the relief of no VAT increase and an inflation rate below the South African Reserve Bank's target range, many South African consumers still rely on credit to get through the month. Unfortunately, the South African Reserve Bank (Sarb) expects inflation to tick up to an average of 3.6% in 2025 and continue increasing to 4.5% in 2026. This, combined with global uncertainty, means the Sarb is unlikely to make any further rate cuts, Benay Sager, chairman of the National Debt Counsellors' Association, says. 'Add increased electricity costs, personal income tax bracket creep and ever-increasing service delivery costs to the mix of diminishing spending power and it is understandable why so many consumers will continue to depend on credit,' Sager says. ALSO READ: What you need to know about personal loans Important to understand how much interest you pay In this context, he says it is important for consumers to understand how much interest they pay on credit-related products such as personal loans and credit cards. 'It is even more important to compare this to the maximum allowable interest rate to make sure you are charged fairly. 'Unlike other countries, in South Africa the maximum allowable interest rate is regulated by the National Credit Act and the maximum allowable interest rate depends on the type of credit agreement and the date the credit agreement was signed.' For South Africans, the two most important types of credit agreements are personal loans and credit cards. This table indicates the maximum interest rates allowable for each and how these have varied since January 2014' Sager points out that there was a significant change in November 2015, when the regulatory calculations for maximum interest rates were changed. 'This change lowered maximum allowable interest rates and has generally been positive for consumers. Since both personal loan and credit card maximum allowable interest rates depend on the Sarb's repo rate, they both benefited from rate cuts during Covid. 'On the other hand, the repo rate steadily increased since 2022, resulting in corresponding maximum allowable interest rates for personal loans as well as credit cards.' ALSO READ: What you should know about loans Examples of interest on personal loans In 2024, the average personal loan amounted to just more than R30 000. Assuming the loan term, the time a consumer has to repay the loan, is one year at a rate of 28.5%, they would pay R8 550 in interest. In South Africa loan terms can range from three to 84 months. Average credit card balances are R24 000 per month, attracting approximately R430 in interest per month, depending on how the credit card provider calculates the interest and assuming the consumer pays off the full balance every month. This amounts to R5 160 in interest per year. 'While these are illustrative calculations, they indicate that the amount of interest you pay for these forms of credit is significant. It is why it is important to compare interest rates before signing a credit agreement and be aware of the maximum allowable interest rates. 'Although there's a global trend towards this, many people still accept the first approved loan without considering they may be able to get a better deal,' Sager says. ALSO READ: FSCA fines African Bank R700 000 for misleading advertising [VIDEO] Check how much interest you should pay He says consumers who are unsure whether they are paying too much interest or what the maximum rate is should check with an NDCA member. A list of members and their contact details can be found here. Members of the association can also help people who are struggling to repay debt. 'Renegotiating interest rates on debt is one of the most powerful tools in a debt counsellor's arsenal. Under debt counselling, rates for unsecured debt can be reduced to near 0% if necessary to allow consumers to pay back expensive debt faster.' Interest on vehicle debt and balloon payments can also be renegotiated and the period extended, Sager says.
