South Africa’s National Credit Act was designed to protect vulnerable borrowers from predatory lending. The uncomfortable truth is that it may now be doing the opposite.
When the National Credit Act was introduced, its intentions were unambiguous: shield low-income South Africans from reckless lenders, prevent households from drowning in unaffordable debt, and bring fairness to a credit market with a troubled history. Those are worthy goals. The problem, according to Brett van Aswegen, Chief Executive Officer of online loan fintech Wonga South Africa, is that the law is now producing outcomes that are the precise opposite of what it intended.
Speaking on the Hot Business podcast, van Aswegen made a case that should give South Africa’s policymakers pause: the very regulations designed to protect low-income borrowers are systematically locking them out of the formal credit market, and pushing them into the arms of unregulated lenders charging 50% interest per month.
Protection That Excludes
The NCA’s affordability and income verification requirements are, in principle, sensible. Before extending credit, lenders must be able to verify a borrower’s income. For someone in formal employment with payslips and a salary-linked bank account, this is straightforward. For the millions of South Africans who earn informally, traders, hawkers, casual workers, gig economy participants, it is a near-insurmountable barrier.
Van Aswegen is blunt about the consequence. “We are a two-tier economy,” he said. “A lot of people in our country are in the informal market, and therein these regulations don’t work very well.” Lenders who extend credit without satisfying income verification requirements face scrutiny from the National Credit Regulator and risk losing their credit licence entirely. So the rational response, the legally safe response, is simply to decline the application.
The protection, in other words, works by exclusion. And what it excludes people from is access to affordable, regulated credit.
The Unintended Consequence: A Boom in Informal Lending
The scale of that exclusion is not trivial. According to National Credit Regulator statistics cited by van Aswegen, the formal credit industry receives around 13 million applications per quarter. Approximately 5 to 5.5 million are approved. That means roughly 8 million people every quarter are declined and left to find credit elsewhere.
“We know the answer” to where they go, van Aswegen said. They enter the informal lending market, where rates of 50% per month are standard. There is no NCR oversight in that market. There are no affordability assessments, no fee caps, no consumer protections of any kind. The law that was meant to protect these borrowers has simply redirected them to a market where they have no protection at all.
Industry rejection rates have risen from around 50–55% a decade ago to over 72% today, a trajectory that reflects the progressive withdrawal of formal lenders from the lower end of the market, driven not by appetite but by regulatory arithmetic.
Fee Caps That Have Become a Barrier
The pricing side of the regulation compounds the problem. The fee caps governing what credit providers can charge were last updated in 2015. In the decade since, inflation has pushed costs more than 55% higher on a compounded basis, while a series of new compliance obligations, FICA, POPIA, DebiCheck, have roughly doubled the operational cost of issuing an online loan.
The result is that for certain borrowers, particularly first-time credit users and lower-income groups, the regulated fee structure makes lending unprofitable. Wonga stopped extending credit to first-time users two years ago for exactly this reason. The company was losing money on every loan it made to that group. The fee cap meant to protect those borrowers from being overcharged has instead ensured they cannot be served at all.
The Paradox in Plain Terms
This is the consumer protection paradox at the heart of South Africa’s credit market. A regulatory regime built on protecting the vulnerable has created a situation where:
Formal lenders cannot profitably serve lower-income borrowers without breaching fee caps or accepting losses.
Income verification rules exclude the informally employed from formal credit regardless of their actual creditworthiness.
The 8 million people declined each quarter end up in an entirely unregulated market with no protections whatsoever.
Van Aswegen’s proposed remedy is not deregulation, it is recalibration. An inflation-linked adjustment to the fee caps set in 2015 would, on his modelling, add around R49 to the monthly cost of an average R3,000 loan. In exchange, formal lenders could profitably serve millions more South Africans, bringing them out of the informal market and into a system that actually protects them.
The Question Regulators Must Answer
The deeper question this raises is one of regulatory intent versus regulatory outcome. At what point does a consumer protection framework become so rigid that it fails the consumers it was designed to protect? And who is accountable when the law’s unintended consequences are this visible, this quantifiable, and this harmful?
President Ramaphosa’s State of the Nation announcement, flagging plans to amend the NCA to improve access for women and youth-led businesses, suggests government is beginning to grapple with this. Van Aswegen’s evidence suggests that grappling needs to happen quickly. Every quarter that passes, another 8 million South Africans are declined by the formal market and left to the mercy of unregulated, dangerous lenders.
