The extension of credit is well-regulated in South Africa, and those engaged in formal lending activities have understood for some time that they fall under the regulation of the National Credit Regulator (NCR).
This has not changed – formal lenders need to be registered with the NCR before they can extend credit. However, the official definition of what constitutes formal lending has indeed changed, and this could affect a number of organisations, depending on their lending activities.
The new legislation stipulates that anyone engaging in lending, whether from a low base (only lending to a few people), or for low amounts of money (the threshold is now from zero), now needs to be registered with the NCR.
For those actively engaged in micro-lending, this might not come as a surprise, but there are some organisations who may not be aware the new act will have an effect on their normal operations. Employers, for example, will now be required by law to register with the NCR if they wish to continue – or to start – offering their staff complement loans.
Many employers offer access to staff loans as an added benefit to their workforce – staff members are able to apply for and receive loans without the additional admin of applying at more formal credit grantors. However, this activity now falls under the ambit of the NCR, and all employers who offer staff loans will now have to register.
Aside from the existing processes and procedures surrounding the administration of staff loans currently, this new requirement will add a significant load to a company’s human resources function, and is likely to stretch capabilities beyond their normal scope of practice.
This administration includes the registration with the NCR itself, providing quarterly returns on lending activity, submitting reports in relation to financial statements, updating the national loans register monthly, and other contributions. Loans also need to be issued subject to the correct affordability assessment checks being performed, further adding to the workload.
Fortunately for those for whom lending is not their core business, there is a solution. Companies such as Vital Credit, who are registered with the NCR, can act as a lending partner, and take the administration and hassles around the process away, leaving organisations to focus on their core business. It also frees up human resources staff from being involved in unnecessary administration that is not core to their positions.
A good staff loans administrator will assist a company to position the offering and granting of loans as part of an employer’s benefits and employee value proposition. It also keeps the company at arm’s length from the lending process, and maintains a level of discretion and confidentiality for the staff member applying for the loan.
This change in the National Credit Act need not spell disaster for companies who offer their workforce staff loans as a benefit. Rather, it is an opportunity to realign this service offered, and position it more strategically as part of a broader value proposition, while simultaneously reducing the administration load on their human resource departments.