How To Start A Micro Finance Business in South Africa?

How do Micro Lenders Operate?

Micro lenders operate in the same way banks do. They get people to invest with them and pay them interest, while lending out that money to people who ask for loans and charging interest on those loans.

The difference between micro lenders and banks is that banks have a ceiling on the amount of interest they can charge, which is stipulated in the Usury Act. Micro lenders can charge any interest rate they like because of an exemption in the Usury Act.

Micro credit is a small loan designed for people who lack collateral, do not have a verifiable credit history or do not qualify for traditional credit. Microcredit is a financial innovation that is generally considered to have originated with the Grameen Bank in Bangladesh.

In that country, it has successfully enabled the unemployed to engage in self-employment projects that allow them to generate an income and become self-sufficient.

Because of the success of microcredit, this concept is gaining credibility in the mainstream finance industry and many commercial banks are offering microcredit as a source of future growth.

Registration

To register a new micro finance company a non-refundable application fee of R500 is needed as well as a R250 branch fee per location. Application forms and all relevant regulations can be easily downloaded from the NCR website or you can download the forms below:

• Application for registration as a credit provider
• Application for Registration as a Credit Bureau
• Application for Registration as a Debt Counselor

How to register?

Documents and information required for the application for Registration as a Credit Provider in terms of Section 40 and 41 of the National Credit Act, 34 of 2005.

Include the following elements in your application to ensure the document is processed:

1. Completed and signed application form (form 2)
2. Companies and Intellectual Property Commission ( CIPC ) registration document or other official legal registration document
3. Copy of the share certificate/s if applicant is company
4. Certified copies of ID/Passports of all members/directors/trustees/partners/sole proprietors
5. Resolution if applicant is a juristic person (see attached specimen)
6. A Criminal Name Clearance Certificate for all the members/directors/trustees/partners or sole proprietors issued by the South African Police Services (SAPS) or other service providers listed in annexure A.
7. Proof of payment of the registration fees:
   1. Non-refundable application fee of R500
   2. Branch fee of R250 per location or premises at or from which the applicant conducts registered activities
   3. Initial registration fee as indicated in the table below for each sub-category of registrant.
8. A letter from the bank confirming the applicant’s banking details or a copy of a cancelled blank cheque.
9. Proof of registration with the South African Receiver of Revenue Services (SARS).

For more information on registering follow this link.

The National Credit Act

The National Credit Act (NCA) aims to promote responsible credit granting and use.

To achieve this, when a customer applies for credit, a credit provider would need to check whether the consumer can afford the credit The NCA regulations state that all new credit agreements need to disclose interest rates, fees and additional charges and regulates the interest rates charged to a maximum rate of interest that may be charged.

Add-on costs for insurance are prohibited.

Under the Act all costs must be advised in advance and the consumer has the right to arrange insurance directly, rather than pay the credit provider to do so. The Registration Division of the NCR is responsible for the registration of Credit Providers. Approval after submitting an online registration takes about eight weeks. All there requirements are carefully listed on the NCR site.