Microlenders facing Regulatory Challenges and Compliance Risks
Microlenders face two regulators and one big risk
By Sameer Kumandan, MD of SearchWorks360
Microlending plays a crucial role in providing small loans to individuals and groups who are unable to access traditional financial services. In South Africa, microlenders have become key players in promoting financial inclusion for those without stable employment or credit histories. These loans empower small business owners and informal traders to kickstart or expand their ventures, as well as assist individuals in bridging short-term financial gaps.
Microlenders are considered “accountable institutions” under the Financial Intelligence Centre Act (FICA), which mandates them to conduct due diligence on borrowers, report suspicious transactions, and implement controls to prevent money laundering and terrorism financing. Additionally, microlenders must comply with the National Credit Act (NCA) to ensure fair lending practices and protect consumers from predatory lending.
However, maintaining compliance with both FICA and NCA regulations can be challenging and costly for microlenders. Non-compliance can lead to severe penalties and damage the industry’s reputation. Microlenders, dealing with numerous small transactions and clients with limited banking experience, are vulnerable to money laundering and fraudulent activities.
The Role of Technology in Compliance
Many microlenders are turning to technology to enhance compliance processes. These platforms facilitate KYC and KYB checks, provide real-time access to credit bureau data, and offer tools for transaction monitoring to detect suspicious activities. By automating compliance processes, microlenders can focus on lending while mitigating operational risks.
VOCA, powered by SearchWorks, enables microlenders to manage compliance efficiently, reduce operational risks, and protect against penalties. The platform provides real-time access to crucial data for assessing borrower risks and making informed lending decisions. Ongoing Monitoring feature helps institutions track client profiles daily and identify compliance risks promptly.
Efficient technological solutions significantly streamline compliance processes for microlenders, allowing them to balance financial inclusion with regulatory expectations effectively. By leveraging the right tools, microlenders can continue serving underbanked communities while staying compliant with regulations.
