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The Effects Of The Interest Rate Ceilings On The Micro Lending Market In South Africa

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  • Mohane, Happy
  • Coetzee, Gerhard K.
  • Grant, William

Abstract

Interest rates are a topical subject in the micro lending industry in South Africa. The micro lending industry has been accused of charging usurious interest and exploitating the consumers. This has led to the Department of Trade and Industry passing a Usury Act with an aim of protecting the consumers. The Act imposes interest rate ceilings on loan finance provided by money lending institutions. These ceilings are proposed to be linked to the prime rate. Given this, it is not possible for micro lenders to charge full-cost recovery interest rates. This paper tries to highlight the effects of interest rate ceilings on the micro finance market. It argues that the biggest cost component of microlenders is administration costs and not the cost of capital, thus linking ceilings to the prime rate is illogic.

Suggested Citation

  • Mohane, Happy & Coetzee, Gerhard K. & Grant, William, 2002. "The Effects Of The Interest Rate Ceilings On The Micro Lending Market In South Africa," Working Papers 18078, University of Pretoria, Department of Agricultural Economics, Extension and Rural Development.
  • Handle: RePEc:ags:upaewp:18078
    DOI: 10.22004/ag.econ.18078
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    Cited by:

    1. Onyango Ochieng & Alphonce Odondo, 2018. "Logit Analysis of the Relationship between Interest Rate Ceiling and Micro Lending Market in Kenya," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(8), pages 105-105, August.

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    Keywords

    Financial Economics;

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