Amid rising living costs and an increase in decline rates from formal lenders, many consumers are being forced into accessing high-cost credit from unregulated lenders. This trend highlights the urgent need for more inclusive financial services.
Due to increased compliance requirements and a reduced appetite for risk among formal credit providers, loan decline rates in the formal lending industry have risen significantly. This situation is pushing consumers towards illegal lenders as they seek alternative sources of credit to meet their financial needs.
Alarmingly, recent reports from our 1 500 members in the micro-lending industry reflect that the rejection rate from regulated lenders has increased significantly. This directly impacts borrowers who are then forced into taking out credit through informal lenders that are under-regulated and do not comply with the National Credit Act.
The increase in consumers turning to illegal lenders can be attributed to the fact that fees charged by regulated credit providers have not been reviewed in nearly a decade.
This stagnation has made it challenging for these regulated businesses to maintain financial sustainability, leading to a decreased appetite for risk. The urgent need for a fee review in the regulated credit sector is evident, as it would enhance the sustainability of these businesses, enable them to serve a broader range of consumers, and protect borrowers from the predatory practices prevalent in the illegal lending market.
