Elbowing the crowd aside

A new lending threshold under the National Credit Act could stunt the ability of start-ups to obtain funding via online lending platforms in SA, just as such loans are growing.

A new lending threshold under the act of zero rand, gazetted by trade & industry minister Rob Davies in May, will mean that investors who use peer-to-peer lending platforms and who lend to any business with an annual turnover of below R1m will have to register as a credit provider with the National Credit Regulator (NCR).

The new threshold is expected to come into effect on November 11. Under existing rules, lenders need only register as a credit provider if they intend lending more than R500,000 to such firms.

Peer-to-peer lending (also known as marketplace lending) allows borrowers such as small businesses to source loans on online platforms from individuals and companies.

For local lending platform RainFin, which was launched in 2012 and in which Barclays Africa has a 49% stake, the new threshold will greatly reduce investors’ ability to fund start-ups at a time when lending to small businesses via the platform, which RainFin initiated in 2014, is taking off.

The platform currently has 280 active investors who can each lend any amount from R50 to R750,000. As lenders can pool contributions, each RainFin deal involves on average 13 lenders.

RainFin CE Sean Emery says the new threshold will limit the ability of those firms with an annual turnover below R1m to get finance via crowdfunding. He says “99%” of the platform’s borrowers would be affected by the new NCR threshold.

Emery says most individuals looking to use the platform to lend to small businesses will be put off by having to register as a credit provider (which the NCR says takes about a month to complete once applicants secure a police clearance certificate). Instead, funding for such firms with an annual turnover of below R1m is likely to come mostly from organisations, he says.

As a platform RainFin, which administers loan agreements on behalf of lenders, is