Compliance Risks and Business Performance of Selected South African Retail Stores, Case of Emerging Markets

In South Africa, it is commonly acknowledged that objectionably high numbers of borrowers are over-indebtedness. However, it is also true that some retailers still need to uphold ethical standard and be risk compliant in line with the statutory and governance requirements. Research has revealed irresponsible credit provision, and inconsistent training, education and sensitisation programs aimed at alerting borrowers about the intricacies of borrowing. This research study sought to evaluate compliance risk and ethical standards within selected departmental stores located in Cape Town, South Africa, whose main operations is based on credit granting. Because these stores do not sufficiently evaluate the compliance risks and ethical standards in the process of granting credit, they ultimately lose potential profits which possibly impact on the long term viability and sustainability of their business operations. The research evaluates the processes surrounding the credit environment vis-à-vis the processes involved in granting credits to customers within department stores and how compliance risk affects their performance. A quantitative research approach was conducted by way of a structured questionnaire. The convenient sampling method was used from selected retail departmental stores in Cape Town. The findings indicate that although departmental stores have written policies and incorporate some level of training on personal lending and credit policies, poor ethical standards are still prevalent within their credit granting environments. Credit granting departmental stores are still exposed to substantial amount of compliance risks, deterring overall business performance. Paper adds value to the domain of credit risk management, and also proposes possible future studies.