Microlending is a R25-billion industry. There are at least 4-million borrowers around the country who have some type of loan with a microlender with interest rates ranging from 18 percent a year, to an extortionate 300 percent. A business that yields high returns with low overheads is an attractive proposition for any entrepreneur but the potential rewards mean the industry attracts its fair share of unscrupulous operators.

Overcharging, retention of ATM cards and intimidation are the order of the day with some lenders. Last year the Micro Finance Regulatory Council (MFRC) retrieved over R2-million for borrowers from lenders who overcharged interest or over-deducted repayments on loans. The council?s intervention was a result of complaints from borrowers that microlenders had deducted beyond the terms of the loan or deducted double for a particular month, or those unregistered lenders whose interest rates exceeded the Usury Act rates.

Unregistered lenders charge interest in excess of Usury Act

Paxton Ramothata, the MFRC?s manager of Complaints and Enforcement, reports that from complaints received, unregistered lenders were found charging interest rates in excess of Usury Act rates.

?Sometimes a microlender may issue more than one loan in one day,? says Ramothata. ?When this happens, the MFRC then requests the lender to combine the loans and do a re-calculation. This could result in loan adjustment in addition to refunds.?

The MFRC says it will help consumers dissatisfied with the treatment they receive from microlenders. While complaints will be handled on their merits and investigated to establish the facts ?we encourage microlenders and borrowers to communicate and try to resolve problems amicably,? says Ramothata.

Council will help both lenders and borrowers

?The MFRC not only concentrates on resolving borrower problems, but also listens to lenders when complaints are laid against them, so we get both sides of the story.?

In the case of complaints received by lenders, 55 percent of these were resolved in favour of the lenders.

Don?t give funds to microlenders

Another disturbing trend that seems to be developing is microlenders who solicit funds from the public promising 30 percent per annum returns. It is against the banking laws for microlenders to take deposits or act as a savings institution.

If you are solicited for funds by a microlender you should report them to the Banking Council. It is important to keep all documentation relating to the proposed transaction. If you hand over cash to a microlender you will have no protection from a governing body. You may as well go and risk your cash at the casino.

Ramothata says the council will do everything in its power to protect consumers as long as ?they are made aware of the problems. Action will be taken against micro lenders who do not lend responsibly?.

If a lender is not registered with the council, or their registration has been cancelled as a result of misconduct, these entities may no longer conduct business in terms of the Usury Act Exemption Notice, and this means that they may no longer provide microloans as defined in the Usury Act Exemption Notice. Microlenders who are not registered with the MFRC automatically fall under the scope of the Usury Act.

Watch that interest rate

The maximum interest that can be charged under the Usury Act is 21 percent per year, for amounts under R10 000 and 18 percent per year for amounts above R10 000. Borrowers who enter into loan contracts with unregistered lenders are advised that such contracts are in contravention of the Usury Act if the interest rates charged are above the maximum limits.

Contact the MFRC for advice on 0860 100 406. You may also approach the Courts to challenge such contracts. You can also visit the MFRC?s website to see which microlenders have been deregistered. I am not an advocate of microlending because of the high interest rates charged, but if you have to go that route at least make sure that they are registered. Then you have some recourse should problems occur.