Unlocking development finance: how fair credit pricing fuels economic growth
- MFSA
- Mar 14
- 3 min read
MicroFinance South Africa (MFSA) is calling for urgent reforms to South Africa's credit regulations, emphasising that fair credit pricing is pivotal to unlocking development finance, supporting small businesses, and empowering low-income communities.
The association warns that outdated caps on lending fees under the National Credit Act are not only threatening the sustainability of formal credit providers but also pushing vulnerable consumers toward exploitative, illegal lenders.
A recent MFSA-commissioned study by 71point4 Consulting revealed that over 40% of borrowers sought credit for developmental purposes, including education (18%), business ventures (14%), and housing (9%). These borrowers often needed small, short-term loans to invest in their futures—whether it was starting a business, paying for schooling, or improving their homes. However, with restrictive lending fees and interest rate caps, many were denied formal credit.
“When regulated credit is unavailable, people don’t stop needing finance – they turn to the shadows,” explains Leonie van Pletzen, Chief Executive Officer of MFSA.
The study showed that nearly 60% of borrowers unable to access formal credit resorted to unregistered lenders, known as mashonisas, who charge exorbitant interest rates – up to 50% per month.
“The most dangerous of this situation is that they will often use coercive collection methods, including seizing bank cards and ID documents, and this cycle of exploitation undermines financial inclusion and economic progress,” says van Pletzen.
Development finance: the engine of inclusive growth
MFSA members, representing over 1,600 credit providers across South Africa, are at the forefront of advancing development finance. By offering small, unsecured loans to individuals excluded from traditional banking, they empower consumers to invest in their futures and break cycles of poverty.
“Fairly priced credit unlocks opportunity,” van Pletzen emphasises. “For an entrepreneur, it means buying stock. For a parent, it means paying school fees. For a household, it means fixing a leaking roof. Development finance transforms lives and communities, but only if the formal credit market is allowed to function sustainably.”
MFSA’s study found that outdated regulations – unchanged since 2015 – have forced many formal lenders to tighten their risk appetite, rejecting over 70% of loan applications despite ongoing demand. This exclusion disproportionately affects first-time borrowers and those in rural areas, where access to traditional banking services remains limited.
Balancing sustainability and access
MFSA warns that without inflation-linked adjustments to lending fees, more credit providers will exit the market, further shrinking access to safe, affordable credit. This would not only harm consumers but also undermine South Africa’s broader financial inclusion goals.
“These reforms are not just about sustaining the microfinance industry,” says van Pletzen. “They’re about ensuring that families and small businesses can access the credit they need to thrive. If we fail to act, we risk driving more borrowers into the hands of illegal lenders, with devastating social and economic consequences.”
Call to action: a collaborative path forward
MFSA is urging policymakers, industry stakeholders, and civil society to prioritise this issue in ongoing parliamentary discussions around financial inclusion. The association believes that a balanced approach to credit pricing will strengthen the microfinance sector while promoting economic participation across South Africa.
“We cannot build an inclusive economy while ignoring the financial realities of those most in need,” van Pletzen concludes. “Development finance is the engine of grassroots economic growth. It’s time we ensured that fair credit pricing reflects today’s economic realities and empowers communities to build better futures.”
About MFSA
MicroFinance South Africa (MFSA) represents South Africa’s registered microfinance institutions, advocating for ethical lending, consumer protection, and financial inclusion. Through industry leadership, MFSA promotes responsible credit practices that empower individuals, support small businesses, and drive economic growth.
For further information contact:
Claire Watt | Ntokozo Kalako
The Friday Street Club
Tel: 082 490 3796 | 067 610 6879
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