The compliance crisis: Increased ID verification fees proposed by Department of Home Affairs threaten legal credit access and progress towards financial inclusion

MicroFinance South Africa (MFSA) is urging immediate engagement by national policymakers following the Department of Home Affairs’ (DHA) recently gazetted announcement to increase identity verification fees. This increase applies to private sector companies that use the service to verify South African ID numbers and other identity information. 

“While we support our government’s efforts to safeguard identity systems and ensure FICA compliance, the proposed fee introduces yet another new cost for registered credit providers to absorb,” states Leonie van Pletzen, CEO of MFSA. “This comes at a time when formal lenders are already struggling to sustain their businesses, as they continue to operate within an outdated and unbalanced regulatory framework.”

“For over a decade, the fees and rates permitted under the National Credit Act (NCA) have remained unchanged, despite a sharp rise in inflation and ever-increasing compliance obligations,” she continues. “These include extensive affordability assessments, data protection requirements under POPIA, and the implementation of DebiCheck.”

According to van Pletzen, the addition of the proposed DHA verification fee, without a corresponding review of permissible credit charges, will place already strained credit providers in an impossible position.

“MFSA and its members are fully committed to regulatory compliance, including robust identity verification under FICA,” she explains. “But the reality is, our industry can no longer afford it.”

Van Pletzen reports that the compliance costs have become unsustainable for credit providers.

“Unless the credit fee framework is reviewed, even the most reputable and responsible lenders will find it challenging to sustain their business operations. This will unfortunately result in more borrowers being forced to follow the illegal lending route.”

Van Pletzen provides an overview of the key issues at hand for the credit industry:

· Rising compliance costs: Regulatory obligations continue to grow, but there is no mechanism to recover these costs through regulated fees. Smaller and rurally-based lenders are the most severely affected.

· Stagnant regulatory framework: Credit fee caps have not been adjusted since 2015, despite escalating costs across operations, technology, and compliance infrastructure.

· Shrinking access to formal credit: With compliance becoming increasingly unaffordable, regulated credit providers are scaling back or exiting the market, especially in underserved communities. This reduces access to safe, legal credit options for consumers.

· Illegal lending is filling the gap: A recent MFSA-commissioned study by 71point4 Consulting shows that 59% of consumers turned away by formal lenders now resort to unregulated mashonisas—where interest rates are exploitative, compliance is non-existent, and consumer protection is absent.

A national concern

Van Pletzen flags that the proposed DHA verification fee, although well-intentioned, may have long-term detrimental consequences for consumers – especially those living in underserved and remote communities.

“The fee increase risks reversing the progress our country has made towards creating a more equitable financial society, where credit is more accessible,” warns van Pletzen. “With this hike in fees, we will start to see the weakening of FICA enforcement, and it is undermining the national effort to improve compliance in line with South Africa’s Financial Action Task Force’s commitments.“

Call to action

MFSA, on behalf of its members and the broader credit industry, is calling for the following urgent interventions:

1.A review of the credit fee framework to enable compliance without compromising financial access or sustainability;

2.A collaborative and co-ordinated response between the DHA, the Department of Trade, Industry and Competition, the National Credit Regulator and the financial sector as whole, to address cost recovery and compliance sighting;

3. Immediate suspension of the DHA fee increase until a sustainable solution is reached, and can be maintained over the long term without negatively impacting social well-being .

“We are fully aligned with government’s objective to improve oversight and secure our financial system, but no credit provider, regardless of their intent, can meet these obligations if the cost of compliance is structurally unaffordable,” concludes van Pletzen. “Well-crafted policy that is effectively implemented is crucial in order to make compliance possible.”

Ends

About MFSA

MicroFinance South Africa is the largest microfinancing association in South Africa that represents over 1 500 registered and legal microfinance credit providers, and service providers to the industry. Over the past 27 years, it has remained focused on its vision to ensure a sustainable microfinancing industry and has continued to expand its footprint, presence and impact.

MFSA is a community of individuals and organisations that are dedicated to enhancing consumer confidence in micro-finance by ensuring professional, legal, and ethical conduct. MFSA has established a Code of Good Practice as a voluntary standard to which its members have agreed to adhere.

About Leonie van Pletzen 

Leonie van Pletzen is the Chief Executive Officer of MicroFinance South Africa, a leading  and trusted voice for the microfinance sector in South Africa. With nearly 15 years of experience in the industry, Leonie is recognised as a passionate advocate for ethical lending, financial inclusion, and regulatory reform. Having risen through the ranks at MFSA since 2010, she brings a wealth of expertise in industry advocacy, corporate governance, stakeholder engagement, and sustainable development.

Leonie has played a key role in shaping policy dialogue between government, regulators, and the private sector, and is an active contributor on various national committees, including the National Credit Regulator’s Credit Industry Forum and the Banking Sector Education and Training Authority.

Her leadership is defined by a commitment to protecting vulnerable consumers while ensuring the long-term sustainability of responsible credit provision in South Africa.

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