Micro Finance Regulatory Council v Aaa Investment (Pty) Ltd and Another

• Jurisdiction: South Africa
• Judge: Mpati DP, Streicher JA, Navsa JA, Nugent JA and Combrinck AJA
• Judgment Date: 21 September 2005
• Docket Number: 346/04
• Hearing Date: 26 August 2005
• Counsel: C D A Loxton SC (with J S Cassette) for the appellant. A C Dodson for the respondents.
• Court: Supreme Court of Appeal

Navsa JA et Nugent JA: B

[1] 'Neither a borrower nor a lender be; For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry.' [1] Shakespeare's Words are Lost in the Reality of the Modern Commercial World. [2] the Poor, Especially, are C Exponentially Becoming Borrowers [3] in What Is Known as the Micro-Lending Industry, Which, as the Name Suggests, Is the Industry in which Lenders Principally Provide Credit to Low-Income Earners in Relatively Small Amounts, at High Monthly Interest Rates, Justified on the Basis of High Risk.

[2] The present appeal concerns the regulation of the micro-lending industry in South Africa and, more particularly, the D powers of a statutorily approved regulator.

[3] Historically, persons who earned low incomes could not obtain credit from established banks or other financiers. The main reason for this was that such institutions were subject to interest rate limitations imposed by the Usury Act 73 of 1968 and were loath to E lend money to low-income earners because of the perceived risk of default and the disproportionate cost of advancing small loans. Section 15A of the Usury Act, however, permits the responsible Minister to exempt categories of money-lending transactions from its provisions on such conditions and to such extent as he or she may deem fit. [4] F

Navsa JA et Nugent JA

[4] In 1992, the then responsible Minister, in response to representations, exempted certain categories of small loans from its A interest rate restrictions. As a result, a burgeoning micro-lending industry came into existence. [5] Predictably, abuses resulted in this industry, which, at the time, was unregulated. Government threatened to withdraw the exemption. The second respondent, the Minister of Trade and Industry, who is presently the responsible Minister in terms of the Usury Act, took advice from an B advisory panel about the best manner in which to regulate the industry. He consequently decided that he would do so through an approved independent private body in which all interested parties would be represented.

[5] On 1 June 1999, the Minister issued a notice under s 15A of the Usury Act in terms of which he exempted micro-lending C transactions from the provisions of the Usury Act but only on condition that

'(a) the entity concluding the . . . money lending transaction is registered as a lender with a regulatory institution; and (b) the lender shall at all times comply with this notice'. D

The notice defined a 'regulatory institution' as a legal entity that, amongst other things, is approved by the Minister as having the capacity and mechanisms to ensure compliance by lenders with the notice.

[6] The notice went on in annexure A, entitled Rules for Purposes of Exemption Under Section 15A of the Usury Act, to set E out various rules in protection of the interests of borrowers, such as methods of confidentiality of transactions, disclosure to borrowers and methods of collection of repayments.

[7] On 16 July 1999, the Minister gave notice that the appellant, a company that was incorporated in terms of s 21 of the F Companies Act 61 of 1973, was an approved regulatory institution as contemplated by condition (a) of the exemption notice. The Minister must have given his approval in the knowledge and with the intention that the company would henceforth ensure compliance with the terms of the exemption notice, and would regulate the industry in accordance with its own powers as conferred upon it by its memorandum G of association.

[8] The appellant company came into being in anticipation of being appointed as a regulatory body for the micro-lending industry. The founding members of the company included Government and representatives of the micro-lending industry and consumers. We shall, for the sake of convenience, refer to the appellant as the company. H

[9] The company's memorandum of association states that its main object is 'to promote the common interests of money lenders advancing small loans through the regulation of the small loans industry'. I

[10] The specific powers of the company, provided for in its memorandum of...