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The effects of the interest rate ceilings on the micro lending market in South Africa

Author

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  • Mohane, Happy
  • Coetzee, Gerhard K.
  • Grant, William

Abstract

Interest rates are a topical subject in the micro lending industry in South Africa. The micro lending industry has been accused of charging usurious interest and exploiting the consumers. This has led to the Department of Trade and Industry passing a Usury Act with an aim of protecting the consumers. The Act imposes interest rate ceilings on loan finance provided by money lending institutions. These ceilings are proposed to be linked to the prime rate. Given this, it is not possible for micro lenders to charge full-cost recovery interest rates. This paper tries to highlight the effects of interest rate ceilings on the micro finance market. It argues that the biggest cost component of microlenders is administration costs and not the cost of capital, thus linking ceilings to the prime rate is illogic.

Suggested Citation

  • Mohane, Happy & Coetzee, Gerhard K. & Grant, William, 2000. "The effects of the interest rate ceilings on the micro lending market in South Africa," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 39(4), pages 1-9, December.
    • Handle: RePEc:ags:agreko:54233
    DOI: 10.22004/ag.econ.54233
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    Cited by:

    1. Thath, Rido, 2018. "Microfinance in Cambodia: Development, Challenges, and Prospects," MPRA Paper 89969, University Library of Munich, Germany.
    2. Md Aslam Mia & Lucia Dalla Pellegrina & Patrick Damme & Mahinda Wijesiri, 2019. "Financial Inclusion, Deepening and Efficiency in Microfinance Programs: Evidence from Bangladesh," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 31(4), pages 809-835, September.

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    Keywords

    Financial Economics; Marketing;

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