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Thursday, 28 February, 2002, 17:06 GMT
Micro-lenders under pressure
Johannesburg skyline, South Africa
There are about 1,300 microlenders in South Africa
Micro-lending has been a booming business in South Africa over the past few years, but two high profile micro-lenders have run into trouble with bad debts so far this year.

Micro-lending is where banks lend small amounts of money, sometimes less than $100, without requiring the rigorous credit checks and collateral required by more traditional lenders.

The sector has been encouraged by the government as a means of providing basic banking facilities to the millions of South Africans unable to open a normal bank account.

There are approximately 1,300 microlenders in the country and estimated outstanding loans total about 14bn rand ($1.2bn).

Since the start of this year both Saambou Bank and Unifer have run into trouble.

Banks under pressure

Saambou has been closed by the banking authorities and is now in administration after a run on its deposits earlier this month.

Unifer - a subsidiary of Absa bank - has also significantly increased its bad debt provisions.

Until recently the South African government had allowed banks access to its payroll system which enabled lenders to deduct loan repayments directly from civil servants salaries.

This has now been banned and some say this U-turn is one of the reasons why Saambou has failed.

'Learning the hard way'

"The take-home pay of the servants was too low," Christo Wiese, head of bank supervision at South Africa's central bank, told the BBC's World Business Report.

"They [borrowers] weren't looking at how much they had left over and that was a problem," he said.

Mr Veesar said the way to ensure the problems faced by Saambou and Unifer do not affect all micro-lenders is to ensure banks carry out credit assessments on borrowers.

"The banks have learnt the hard way in this exercise," he said.

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Christo Veesar, South Africa's central bank
"The banks have learnt the hard way"
See also:

13 Feb 02 | Business
Doors to open for Saambou savers
23 Jan 02 | Business
South Africa loan row rumbles on
28 Mar 01 | Africa
Banking for the townships
25 Jun 99 | Your Money
US borrows poor loans idea
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