South Africa’s National Credit Act: A Possible Model for the Proper Role of Interest Rate Ceilings for Microfinance

Whittaker, Megan | January 1, 2008

This comment will discuss the current debate regarding the proper role of interest rate ceilings in microfinance and how the South African National Credit Act should serve as a model for future studies of microcredit systems in developing countries. Part II will discuss the controversy over interest rate ceilings in microfinance, setting concerns regarding the effect of ceilings on the viability of microfinance institutions against the need to protect marginalized consumers from predatory lending. Part III will analyze various alternatives to usury laws that microfinance experts have proposed, with an emphasis on supervisory and regulatory systems as the most promising option. Part IV will discuss South Africa’s National Credit Act of 2005, a sophisticated supervisory and regulatory system which the South African government enacted as a response to decades of ineffective policies regarding usury laws. The comment concludes by explaining how the new South African model attempts to resolve many of the issues expressed in Parts II and III, and if successful, may provide a critical example of how interest rate ceilings and microfinance can co-exist in a symbiotic relationship.