Microfinance Regulation and Supervision in South Africa

This document states that as South Africa made the transition to majority rule in the early to mid-1990s, it had to face up to the need for a parallel transition in its economic institutions. Since then, South Africa has made significant strides toward improving the national policy and legal environment for more equitable economic growth including small-scale finance.

As part of the process of deepening the financial sector, the Micro Finance Regulatory Council (MFRC) came into being in 1999, under an Exemption to the Usury Act. The MFRC's purpose is to supervise the operations of those institutions lending under its unrestricted interest rate window, and to provide for effective consumer protection and regularization of micro-lender operations in a growing market. Having served this role for over five years, the MFRC is soon to be absorbed into a larger regulatory structure, as part of a new generation of financial reforms.

This essay examines the MFRC and its effectiveness within this setting, providing an overview of the reform processes leading up to the MFRC establishment. It also provides an assessment of ongoing financial sector reforms which will potentially bring new license types to the banking sector as well as create incentives for increased access to finance for small and micro enterprises and in South Africa townships and other low-income areas.