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DEBT
CONSOLIDATION LOANS
R25 000
Easy access to cash loans when you need
it!
THE TRUTH ABOUT
MICRO LENDERS
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Are all micro financiers
and
"loan sharks"
Professional micro financiers do not exploit their
clients and act strictly in accordance with established
ethical codes and codes of conduct, and in the interest
of the client. After all, the objective is to get repeat
business from the same client. "Loan sharks", by
contrast, frequently do not have a fixed address, charge
excessive interest, have no book-keeping or operating
system in place, and resort to unethical methods of
collection.
Professional micro financiers distance themselves from
''loan sharks'' and insist that the authorities do
everything in their power to curtail the activities of
these operators, ridding the industry of them in the
process.
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Do micro financiers charge
excessive loan interest rates?
The cost of credit charged by micro financiers is
referred to incorrectly as being the interest rate.
However, it represents the total finance costs per micro
loan/personal loan, charged
by micro financiers, inclusive of components such as
administration costs, management of the account and
risk. This mark-up can, therefore, not be equated with
the interest rate charged by a bank as this would be
tantamount to comparing apples with pears. Micro
financiers may not charge any other costs e.g.
administrative costs separately. The mark-up, therefore,
is all the client pays and there are no hidden costs.
The main reason why the interest rate portion, only, of
micro financiers' charges is higher than that of the
banks is because micro financiers take a far greater
risk than banks do. Banks are invariably not prepared to
help any client who does not have security for a micro
loan. Micro
financiers lend money without any security being offered
by the client.
The administrative costs related to lending
transactions, are relatively higher for smaller
unsecured loans.
Several small unsecured loans are necessary before a Micro
financier is able to generate income equal to that which
a bank is able to generate by means of one big loan over
a term. Micro financiers are entitled to cover their
costs and to make a reasonable profit in line with the
risks to which they are exposed.
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Would Formal banks will be
able to offer micro loans more efficaciously and at
lower interest rates.
Formal banks are not prepared to take the risks
associated with lending money to the informal sector.
The cost structure of formal banks is such that they
find small loans completely unprofitable. Formal banks
do not have the infrastructure and distribution network
of micro financiers to deliver a service to the remote
corners where this service is required. Formal banks do
not have the necessary expertise of the micro finance
industry to run this kind of business as successfully as
they do.
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Is the name "Micro
financier" simply another name or a euphemism for ''loan
shark’’?
There is a clear distinction between formal micro
financiers who observe strict business ethics and
informal lenders who choose to remain faceless (no
office or fixed address etc.) The latter often show no
mercy in their dealings with their clients. It is this
kind of operator that is the essence of "Loan Sharking".
In order to survive in a competitive free market, formal
micro financiers have to conduct themselves
professionally, in a friendly and helpful fashion,
delivering an acceptable service to ensure that their
client's rights are protected. Acceptable service levels
are paramount to lenders business cycle.
Informal micro financiers or ''loan sharks'' are not
registered with the NCR as regulatory body and do not
belong to any professional organisation, such as the
MFSA, who is their collective representation in their
industry. Their conduct falls beyond the ambit of the
provisions of the law, which gives the entire industry a
bad name.
Formal micro financiers, who conduct themselves
professionally and comply with the law, make an
important contribution to the economy, in providing
money loans to a market segment which cannot be serviced by
banks due to the risks involved. These cash loans are used
for education and training, housing, the running of
businesses and for personal needs. The lender seeks to
ensure that clients do not expose themselves to loans
that are too high for their particular circumstances.
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Are loans given to
unqualified clients?
The financial position of the client and his ability to
repay is accurately determined based on information
provided by the client and also by means of discreet
enquiries made by the Micro financier. The loan,
interest (including costs), conditions, amount to be
repaid and contents of the agreement are explained to
the client, usually in his own language so that he
understands clearly what is involved. The latter
particulars are concluded in a written agreement between
client and Micro financier. The client is provided with
a copy of the agreement.
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Do consumers easily get
themselves into a debt spiral from where there appears
no way out?
Consumers are selected and assisted in only borrowing
such amounts to ensure affordable repayments. Clients are
assisted further in elementary financial planning and
basic budgeting, as explained in the MFSA's community
education publication: "Personal Money Management".
Specific attention is given to the aspect of granting
loans that the client is capable of repaying. If a Micro
financier intends to continue the business cycle with
his clients and repeat business, it is not in his
interest to over lend. (By doing so he would only have a
market for his loans for a few months, where after he
would have to shut down. Would not mention)
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Are micro financiers
illegal and unregulated?
Micro financiers act in terms of legal provisions that
have been put in place by the authorities, in terms of
the Usury Act or Regulations. All micro financiers have
to be registered with the Micro Finance Regulatory
Council (NCR) and be able to prove their membership to
the public. By registration with the NCR, a Micro
financier does not automatically become ethical end
therefore, as a form of self-regulation; MFSA members
are subject to a stringent code of ethical behaviour
codes that also include proving membership to the
public.
Professional micro financiers, consequently, are
registered, act in terms of the law and maintain high
professional, ethical and moral standards in the course
of conducting their business. Several conventional banks
have also now joined the ranks of micro financiers.
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THE TRUTH ABOUT MICRO LOANS,
PERSONAL LOANS AND MONEY LENDERS
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