This article is for informational purposes only and may not be aligned with the editor’s point of view.
Wonga’s Brett van Aswegen has a specific complaint about the National Credit Act’s fee caps. But the problem he’s describing runs deeper… and it’s not unique to credit.
There’s a particular kind of regulatory failure that’s easy to miss because it does not announce itself with a scandal or a crisis. It accumulates quietly, over months and years… in that time the gap between a regulator’s original assumptions and the current reality grows wider. The original rules that defined the system stay the same but the world around it doesn’t. And by the time the mismatch becomes visible in the data, millions of people have already paid the price, often literally.
Brett van Aswegen, Chief Executive Officer of online loan provider Wonga South Africa, described exactly this kind of failure in a recent Hot Business podcast interview: focusing on the National Credit Act’s fee cap structure, which has not been meaningfully updated for over a decade at this point. But the dynamics he describes are recognisable far beyond this single regulation and they point to a broader question about South Africa’s capacity to keep its financial regulatory framework calibrated on the live pulse of the economic reality, especially those most at risk.
Please note that short term pay day loans often carry high interest rates that can force individuals into a financial hardship.
A Problem More Than Ten Years in the Making
When the NCA’s (that’s National Credit Act to me and you) fee caps were last revised, the regulatory and operational landscape for credit providers looked very different. POPIA: the Protection of Personal Information Act: had not yet taken effect. The DebiCheck debit order authentication system did not exist. The full weight of FICA compliance had not yet been felt across the industry.
In the decade since, each of these changes has added real cost to the business of issuing a loan. DebiCheck alone has roughly doubled the cost of collections processing for many providers. POPIA and FICA compliance carry significant ongoing operational overheads. Meanwhile, inflation has compounded to push general costs more than 55% higher.
The fee caps haven’t moved an inch. The result is a regulatory ceiling that was calibrated to a baselevel that no longer has any relevance: one that made commercial sense in 2015 but makes very little all these years later.
When Regulation Becomes a Barrier
The practical consequence is that regulated lender of payday loans (a term they lenders don’t care for but still reflects the reality of the product, albeit in a much more heavily regulated and scrutable marketplace) can no longer profitably serve lower-income and higher-risk borrowers within the regulated fee structure.
Wonga stopped extending credit to first-time credit users two years ago: not because of any change in its risk appetite, but because the regulated pricing couldn’t cover the cost of serving that segment.
The company is now facing the same calculation on certain lower-income groups. Industry-wide, credit rejection rates have climbed from around 50–55% a decade ago to over 72% today. The formal market is receiving more applications than ever: roughly 13 million per quarter: but approving a shrinking proportion of them. The 8 million applicants declined each quarter are not disappearing. They are moving into an unregulated informal market where rates of 50% monthly interest rates are standard.
This is the harsh regulatory of ‘regulator lag’ causing real harm… the slow erosion of a framework’s relevance until the gap between its assumptions and reality produces outcomes that are the opposite of those intended.
Van Aswegen’s frustration is valid, especially considering the fact that the relevant authorities have already been presented with the evidence. Wonga’s own modelling: showing the cost impact of an inflation-adjusted fee structure, the likely improvement in approval rates, and the estimated R350 billion in additional formal credit that could flow annually: has been put before both the Department of Trade, Industry and Competition and the National Credit Regulator.
The info isn’t missing. The analytical work has been done. An inflation adjustment to fee caps would add around R49 to the monthly instalment on an average R3,000 loan: a modest consumer cost that would enable the formal market to serve millions more people.
Yet the adjustment has not been made. The gap between evidence and action is itself a form of regulatory lag.
An Overly Structured Approach to Messy Realities Doesn’t Work
The specific NCA fee issue is, in some respects, the easy part of the problem. Van Aswegen identifies a second, deeper structural issue: the income verification requirements embedded in the credit act, which require lenders to formally validate a borrower’s income before extending credit.
Those requirements were designed for a formally employed workforce. They work well when a borrower can produce payslips, salary-linked bank statements, and a formal employment record. They work poorly (or not at all) for the large proportion of South Africa’s economically active population who earn informally and are paid cash in hand. The regulation does not distinguish between a first-world income profile and the economic reality of a two-tier labour market. It simply applies the same standard to everyone, and excludes those who cannot meet it.
Fixing this requires more than updating a fee schedule. It requires rethinking the underlying assumptions about what income looks like and how creditworthiness can be assessed in an economy where formal employment is the exception rather than the rule for a significant portion of the population. That is a bigger legislative lift: but van Aswegen argues it is a necessary one if the NCA amendments signalled by President Ramaphosa are to have any practical effect on access for women and youth-led businesses.
The Cost of Getting It Right Too Slowly
Financial regulation that lags behind economic reality is not a uniquely South African problem by any means. But South Africa’s particular combination of a large informal economy, a high proportion of credit-excluded citizens, and a formal regulatory framework calibrated to a narrower set of economic participants makes the stakes unusually high.
Every year that fee caps remain frozen at 2015 levels, the formal online loans market retreats a little further from the people it was designed to serve. Every quarter that income verification requirements remain unchanged, millions of informal workers remain systematically excluded from affordable credit. The loan shark market does not wait for regulatory reform. It fills the gap immediately, at 50% per month.
Wonga’s case is a simple one, ultimately: the regulatory framework needs to be updated to reflect where the economy actually is, not where it was when the rules were last written. The cost of that update, borne by borrowers in marginally higher monthly instalments, is far smaller than the cost of the alternative: which is already being paid, every month, by millions of South Africans in an unregulated market that offers them no protections at all.