The opportunity of lending fintechs in South Africa

The Fintech sector in South Africa has made considerable progress in the sector in recent years, raising around US $ 100mn in 2019 through 33 deals, which takes it to third place within the African continent, after Nigeria and Kenya, in terms of total flows of Fintech financing in 2019. Moreover, South African fintechs are expected to increase their market share, largely by granting rights to financially excluded clients (Tellimer Research, 2020). Furthermore, South Africa has 4 of the 12 cities with the greatest advance in all of Africa, with Johannesburg being the main Fintech city in Africa (Findexable, 2020)

The strongest categories in South Africa are those related to digital payments, Insurtech and financing for small and medium enterprises. Only in the case of companies in the lending category of the South African country, these represent 21% of the total sector (Tellimer Research, 2020) and are characterized by having a relatively young consumer profile since the profile of clients of lending mainly brings together millennials and the Gen Z population, which represent 70% of consumers who apply for loans. 

This Fintech vertical represents an opportunity for SMEs since the lack of access to finance for SMEs remains a challenge in South Africa, inhibiting their growth and sustainability. In fact, Bank-imposed regulations make it difficult for SMEs to access loans during the 2020 pandemic. For example, as of October, only 44,912 SMEs had sent a financing request to commercial banks, representing 2% of all South African SMEs. , and almost 40% of these requests were still in process. One of the main reasons for this is that some banks require SMEs to have a loan or transactional banking relationship with them to access finance, which automatically excludes unbanked businesses.

Regulation

The provision of loans or any form of credit is regulated under South African law by the provisions of the National Credit Act 2005 (NCA), which requires lenders in respect of whose credit agreements the NCA applies, to formally register as ‘credit providers’ with South Africa’s NCR. The NCA generally applies to every credit agreement between parties dealing at arm’s length and made within, or having an effect in, South Africa.

There is no specific regulation of peer-to-peer or marketplace lending in South Africa. Activities in relation to peer-to-peer lending, however, are likely to trigger licensing or regulatory requirements under South Africa’s general financial services regulatory frameworks (eg, the NCA, the Banks Act, CISCA or the NPSA), where the offering entails engagement in regulated activities or regulated ancillary activities. In the main, peer-to-peer or marketplace lending will be regulated under the NCA unless an exemption from the NCA applies (Financial Market Journal, 2021)

Microfinance in South Africa

One option aside from banks in South Africa are microfinances. One of the most important is Barko Loans, a leading microfinance institution in South Africa, established in 1996. Barko Loans target market is made up of the millions of modest income earning, formally employed South Africans, government employee’s, mining industry employees and private sector employees

Pre-pandemic, BFS issued around 1.5 million loans a year through its network of more than 190 branches to support everyday South Africans coping with financial hardship, often those on low incomes.

Lending Fintech in South Africa

One of the rising lending Fintech in South Africa is Bright On Capital. This Fintech is an online lender that provides affordable working capital solutions of up to R1 million to small and emerging businesses with sustainable growth prospects. You can transact online 24 hours a day, no paperwork required and only simple and easily accessible information required. You can apply and get pre-approved in less than 48 hours and access your loan facility in less than 4 hours