Millions of South Africans are being denied access to formal credit and turning to informal lenders, prompting calls for urgent regulatory reform.
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South Africa's biggest credit challenge is not excessive borrowing but a growing lack of access to regulated finance, according to the Credit Association of South Africa (CASA), which has warned that millions of consumers are increasingly being pushed toward informal and potentially risky lending channels.
CASA chief executive Leonie van Pletzen said that every year millions of credit applications are declined by the formal financial sector, leaving many consumers with few alternatives when faced with pressing financial needs.
"Behind every declined application is a person trying to solve a real life problem, whether that is paying school fees, repairing a vehicle, covering a medical emergency, purchasing stock for a small business, or simply making it through the month," she said.
According to CASA, when consumers are unable to obtain credit from regulated financial institutions, they often turn to illegal lenders, informal borrowing networks, unregulated financial products, or alternative financing arrangements that may offer little protection if problems arise.
"The reality is that when regulated credit becomes inaccessible, consumers do not disappear. They simply move elsewhere," said van Pletzen.
"That should be a concern for all of us. The question is not if consumers will borrow. The question is whether they will borrow from regulated institutions that operate under strict consumer protection requirements, or from providers operating outside the formal system."
CASA argues that the issue is not regulation itself but rather a regulatory framework that has not kept pace with major economic and technological changes over the past decade.
The association said South Africa's credit environment has evolved significantly, while regulations have remained largely unchanged despite rising inflation, increasing compliance costs, advances in technology and shifts in consumer income patterns.
"The challenge facing South Africa is not regulation itself. Instead, it is a regulatory framework that has not undergone a meaningful review in more than a decade, despite significant changes in the economy, technology, consumer behaviour, and the cost of providing credit," CASA said.
The organisation noted that inflation has eroded many of the assumptions underpinning existing credit regulations, while financial institutions face substantially higher costs related to compliance, governance, reporting, technology and cybersecurity requirements.
At the same time, technological innovation has created new opportunities to assess creditworthiness, particularly for consumers who may have limited traditional credit histories.
CASA said modern consumers increasingly earn income through self employment, entrepreneurship, informal work and flexible earning arrangements that were not widely considered when many current regulations were introduced.
Van Pletzen said access to responsible credit remains a critical component of economic growth and financial inclusion.
"As South Africa focuses on economic growth, investment, entrepreneurship, and job creation, it is critical that regulation continues to protect consumers while also supporting access to responsible finance," she said.
The comments come as policymakers continue to focus on measures aimed at stimulating economic growth, attracting investment and supporting small business development.
CASA pointed to recent remarks from the Department of Trade, Industry and Competition emphasising the need for a regulatory framework that supports growth and enables competition.
The association believes modernising elements of South Africa's credit framework could unlock significant economic benefits.
Research cited by CASA suggests that reforms could potentially unlock more than R300 billion in additional formal credit, helping to support financial inclusion, small and medium sized enterprise growth, economic participation and job creation.
"This is not a call for less regulation. It is in fact a call for smarter regulation," said van Pletzen.
"A modern framework should preserve strong consumer protections while ensuring that responsible, regulated providers remain able to serve the millions of South Africans who rely on access to formal credit."
She added that ensuring access to regulated lending options is essential to protecting consumers and supporting long term economic development.
"If we are serious about financial inclusion, economic growth, and consumer protection, we must ensure that the formal financial sector remains accessible, sustainable, and capable of serving the people who need it most," van Pletzen said.
"The ultimate risk to consumers is not having access to regulated credit, but rather having no regulated credit options available to them at all."
PERSONAL FINANCE