The NCA came into being to encourage responsible borrowing and avoid over-indebtedness of end-users within the South African financial services sector. Issues of particular concern at the time included uncontrolled lending and charging of exorbitant interest rates. Thanks to the NCA, credit granting has become a regulated industry in which registration of lenders is mandatory. The overall impact of this legislation has been the consolidation amongst lenders who were operating under Exemption Notice of the Usury which is a precursor to the NCA.
Since the implementation of the NCA, many micro-lenders have joined forces to remain competitive, while others had to incur costs and reduce their rates in order to comply with the new Act. Such consolidation has not only resulted in fewer players remaining in the market, but has created greater opportunities for those who could weather the storm.
One of those who benefited from these opportunities is Mafori Finance, black-owned and managed micro-finance company that has been operating in South Africa for the past 10 years. The company experienced exponential growth since inception of the new Act. The company attributes this success to operational experience gained over the past decade, a homegrown skills base, continuous institutional memory throughout as a result and zero staff turnover in its 10-year history, in conjunction with robust IT platform and efficient process management systems.
Since inception the company's focus has been on “cash flow management rather than ‘paper profits'”, according to managing director Pakie Mphahlele. A contributory factor was the gap created in the market for micro-financiers like Mafori Finance as banks neglected the low-income market, perceiving it as a credit risk.
“Under current market conditions loans are likely to be short-term and if clients pay well then the impact of cash-flow constraints can be managed until markets settle. Modern and sophisticated micro-lenders are now offering all that banks offer in terms of credit. I believe the distinction between banks and micro-lenders in the credit market is blurring and that quality of service will ultimately determine who secures the business,” says Mphahlele.
Very few micro-lenders have been adversely affected by international crises in the financial sector, though this made it doubly difficult for these institutions to raise the capital needed for growth. Mafori Finance, however, has relied on management innovation and cash-flow contingencies to see it through a tough economic period.
Besides business growth through space created by limiting of credit extension by the banks, Mafori also capitalized on opportunities created by market consolidation to implement its inorganic growth strategy. In the past eight months the company made acquisition of two medium-sized lenders. This transformed it into arguably one of the top five independent micro-finance companies in the country.
