Every year, millions of credit applications are declined by the formal financial sector. Behind every declined application is a person trying to solve a real-life problem: paying school fees, repairing a vehicle, covering a medical emergency, purchasing stock for a small business, or simply making it through the month.
When formal credit is unavailable, consumers do not suddenly stop needing finance. Instead, they increasingly turn to:
- Illegal lenders and mashonisas operating outside the law;
- Informal borrowing networks that place strain on families and communities;
- Unregulated products that often fall outside consumer protection frameworks;
- Alternative forms of borrowing that offer little recourse when things go wrong.
“The reality is that when regulated credit becomes inaccessible, consumers do not disappear,” says Leonie van Pletzen, CEO of the Credit Association of South Africa (CASA). “They simply move elsewhere.”
“That should be a concern for all of us,” she continues. “The question is not if consumers will borrow. The question is whether they will borrow from regulated institutions that operate under strict consumer protection requirements, or from providers operating outside the formal system.”
The villain is outdated regulation
Consumer protection remains essential. The challenge facing South Africa is not regulation itself. Instead it is a regulatory framework that has not undergone a meaningful review in more than a decade, despite significant changes in the economy, technology, consumer behaviour, and the cost of providing credit. The current framework has failed to keep pace with:
- Inflation: More than ten years of rising costs have eroded the economic assumptions underpinning the current framework.
- Operating and compliance costs: The cost of serving consumers through regulated institutions has increased substantially as compliance, governance, reporting, technology, cybersecurity, and regulatory requirements continue to expand.
- Technology and innovation: New technologies and alternative data sources have transformed the way creditworthiness can be assessed, particularly for consumers with limited traditional credit histories.
- Consumer realities: Today’s economy is increasingly characterised by self-employment, informal income streams, entrepreneurship, and flexible earning models that were not contemplated when many of the current rules were developed.
Access drives growth. Growth requires investment. Investment requires access.
A statement from last week’s DTIC Budget Vote stands out: ‘Creating a conducive regulatory framework that supports growth and enables competition’.
“This principle is particularly relevant to the credit market,” reports van Pletzen. “As South Africa focuses on economic growth, investment, entrepreneurship, and job creation, it is critical that regulation continues to protect consumers while also supporting access to responsible finance.”
Research indicates that modernising aspects of South Africa’s credit framework could unlock more than R300 billion in additional formal credit, supporting financial inclusion, SME growth, economic participation, and job creation.
“This is not a call for less regulation, it is in fact a call for smarter regulation,” says van PLetzen. “A modern framework should preserve strong consumer protections while ensuring that responsible, regulated providers remain able to serve the millions of South Africans who rely on access to formal credit.”
“If we are serious about financial inclusion, economic growth, and consumer protection, we must ensure that the formal financial sector remains accessible, sustainable, and capable of serving the people who need it most,” concludes van Pletzen. “Because the greatest risk to consumers is not access to regulated credit. It is having no regulated options at all.”
