An assessment of the National Credit Act 34 of 2005 as a vehicle for expanding financial inclusion in South Africa

The advancement of financial inclusion is at the top of the international development agenda for policy makers and development institutions. Empirical evidence indicates that households that participate in the mainstream financial services sector can start and grow businesses, manage risk, invest in education, save and absorb financial shocks. National Treasury recently recognised financial inclusion as a policy priority and emphasised the need to enhance it under the new twin peaks system of regulation. This study submits that a conducive legal and regulatory framework is an important key to unlocking the benefits of financial inclusion. More pointedly, it demonstrates that the National Credit Act 34 of 2005 (NCA) plays a central role in promoting financial inclusion since access to unsafe and exploitative credit can lead the poor to pay more, and thereby affecting their ability to access credit and other financial services. Although financial inclusion has been improving in South Africa, over-indebtedness remains pervasive. Access to credit has been exacerbating the financial exclusion of many historically disadvantaged and low income consumers in spite of the NCA. Therefore, this study undertakes a critical assessment of selected aspects of the NCA with a view to determining whether the Act is up to the task of expanding financial inclusion in South Africa. Arguments and suggestions have been made in this study to refine the NCA (and other related laws) such that it promotes access to safe and affordable credit for previously disadvantaged and low income population groups, encourages responsible lending and provides effective debt relief mechanisms