The SA lender you’ve never heard of with almost no bad debt

It lends to the poorest of the poor and has created close to 200 000 jobs. How does it do it?
Postive peer pressure … new clients are allocated to a cell of five or six other borrowers, with every member undertaking to cover the repayments of the others. This keeps cell members honest and ensures loans are recovered. Picture: Moneyweb

All major banks have at various times attempted to tap the low end of the banking market, and all – to a greater or lesser extent – have withdrawn from it. Most are involved in payroll-based lending to the low income market, but outside of that have failed to make this a viable business.

Their lending models rely on proof of income and collateral, something the poor simply do not possess.

One lender that has upended the conventional banking model is the Small Enterprise Foundation (SEF), a South African micro lender modelled on the hugely successful Grameen Bank in Bangladesh.

Founded in 1992 by John de Wit and Matome Malatji, it has disbursed R8.7 billion in loans to people who do not qualify for traditional bank loans – and created 200 000 jobs in the process.

The percentage of its portfolio at risk is just 0.2%, a fraction of that of the very best of the commercial banks.

Overall, about 3% of SA banks’ combined loan books are non-performing, according to a 2018 PwC analysis of the banks. Last year Capitec, which has the highest exposure to unsecured lending among the commercial banks, reported a 12.2% provision for doubtful debts as a percentage of gross loans and advances. Figures from the National Credit Regulator show unsecured lending has multiplied four-fold to R200 billion since 2009. Unsecured lending grew 21% last year, a rate of growth that should be a cause for concern. Nearly four of 10 South Africans qualifying for credit have impaired records.

Shining in a troubled sector

How does SEF manage to shine in a sector where others have burned their fingers? Borrowers are introduced by existing and trusted clients, which serves as the first line of credit defence. They are then allocated to a cell of five or six other borrowers. Every member of the cell undertakes to cover the loan repayments of the others. This peer pressure keeps cell members honest and ensures loans are recovered.

SEF targets not just the poor, but the ultra-poor: those who live below the poverty line.

What really differentiates SEF from other lenders is that it is not trying to make a profit. Surpluses are ploughed back into new loans and a highly effective poverty reduction programme that involves financial education and savings mobilisation.

Getting the poor started

“What we do is get the poorest of the poor started on their journey in business,” says de Wit. “But it is not good enough just to lend money without also providing the tools and education that go into making a successful business.”

SEF clients have accumulated net savings of R109 million as a result of its education intervention, which is almost 25% up on the previous year.

SEF has been in operation for almost three decades and the bad debt ratio remains very low.

It started off in Limpopo, but now offers loans in seven of the country’s nine provinces (the Western Cape and Free State are not yet covered). What’s also interesting about SEF’s business model is that it actively seeks out borrowers through a network of nearly 600 loan development facilitators.

The average loan size is about R4 000, and 84% of clients re-borrow after paying back the initial loan. The average rate of interest is 32% a year, which is well within limits defined under the Usury Act.

Bear in mind that SEF is targeting what is generally considered the highest risk segment of the market. Some 99% of borrowers are poor, black women.

There are some astounding success stories.

Some micro entrepreneurs have gone on to run decent-sized businesses, including furniture factories and fleets of taxis.

The major banks that tiptoed around unsecured lending have seen decent improvements in credit loss ratios in the last three years: the ratio was 0.73% for Absa in 2018, 0.8% for FirstRand, 0.53% for Nedbank and 0.56% for Standard Bank.

Traditional banks’ business models, based as they are on collateral and legal processes to recover debts, have been unable to crack this market.

Hands-on approach

At the first sign of trouble, SEF facilitators contact the borrower and see what intervention is required to get the borrower up to date on repayments. In some cases, payment obligations are rescheduled, particularly where the client is unable to meet payment obligations due to long-term illness. Rescheduling can hide a lot of poor quality lending, and is regarded as something of a last resort. It is this flexibility and hands-on intervention that makes the difference between success and failure in the micro-lending market.

The unsecured lending boom took off in earnest in 1993 with the amendment of the Usury Act, which lifted the ceiling on interest rates with the express intention of stimulating lending to the poor. This contributed to the collapse of African Bank (now back on its feet again) and battered retailers such as Stuttafords and Edcon. At the other end of the scale, SEF has shown what can be done with a fresh approach to lending and debt recovery.

“There is a way for banks to get involved in this market and make it work,” says de Wit. “We would be willing to collaborate with them and share our hard-won knowledge. But our experience tells us they cannot ditch their traditional approach to lending, which involves credit assessment and collateral. Probably a better way for them to participate in this market is to give us the money to lend on their behalf.”



Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in and an Insider Gold subscriber to comment.


Whoever charges more than 2% above prime rate, should be locked up for life. This is a disgrace for mankind that the poor are exploited in this way. I still find it very amusing to read about how these outrageous interest rates are actually allowed in the world today. Interest rates worldwide are on downward trend for decades.

and they target poor, black women.

AND they ask US to give them more operating capital!

The statement here ignores the whole story.

The profit generated are used to fund others.

Once bank or any individual provide seed funding this interest can be lowered.

The average rate is 32%!
I guess it can be viewed as a service of some kind, let’s not miss the point that it must be quite profitable for the lenders.

32%… yeah, that’s not great. But if the business was great they could probably get better loans…

tell us more about the salaries of the directors and managers please.

However, borrowers are prepared to agree to such rates. Most likely due to inability to comprehend the future implications, maybe out of panic/desperation/urgency/fear of some previous lender calling in a previous loan…

It does happen commonly.

But frightening and unethical.

Pure supply and demand with a built in risk vs reward measure.

Does SEF publish its results? It would be interesting to see what their P&L looks like.

Imagine if the business could be sustainable at 16% instead of 32%…

Yes and on time.Visit their website to see them


Thanks, eventually found it. Nice basic AFS without the 200 pages of blah blah glossy pictures.

It seems initiation fees make up a big chunk of revenue – not clear to me how that works. Also, they obviously benefit from soft terms on loans taken out. But overall a nice concept. I wonder if this could scale to larger advances. I am unclear how much of the advances are truly business advances versus personal need advances (school, medical, books, etc)

I just read it online their information is on the website.

Indicator May 2019 Feb 2019 2018 2017 2016 2015
Number of active clients 196,909 189,944 195,343 160,405 138,827 130,360
Women clients 99% 99% 99% 99% 99% 99%
Value of loans outstanding R 555 million R 440 million R 597 million R 425 million R 302 million R 290 million
Current average loan size in loan portfolio R 4,032 R 3,636 R 3,688 R 3,406 R 2,929 R 2,912
Number of loans disbursed since inception 3,406,873 3,236,794 3,234,655 2,568,442 2,186,154 1,869,137
Amount disbursed since inception R 8.66 billion R 8 billion R 8 billion R 5.8 billion R 4.6 billion R 3.7 billion
Bad debt rate 0.50% 0.30% 0.30% 0.70% 1.10% 0.99%
Portfolio at risk > 30 days 0.20% 0.20% 0.22% 0.30% 1% 0.90%
Current rescheduled loans (due to illness) R 824,000 R 932,036 R 822,699 R 864,274 R 712,897 R 694,350
Death write-offs (YTD) R 2,920,803 R 2,442,966 R 1,404,018 R 2,262,475 R 1,850,893 R 1,410,167
Total savings held by clients R 109 million R 89 million R 161 million R 91 million R 65 million R 51 million
Total staff 876 841 857 736 689 658
Total operations staff 703 698 689 612 587 564
Clients per loan officer 330 323 336 316 284 278
Operational self-sufficiency 112% 114% 113% 109% 102% 102%
Financial self-sufficiency 112% 114% 113% 109% 102% 102%

Wait until Viceroy gets hold of this!

They are not listed nor do they have a profit motive so of no interest to Viceroy or the SA short sellers that are the actual force behind Viceroy.

It is admirable to get the poorest of the poor started with their own businesses. Just a pity they are overwhelmed by illegal foreigners stealing the business from them.

Poor Hachmed it appears he is one of the suckers that over indebted himself.

Not at all, have more than enough to retire, debt to assets less than 20%, taxes paid up to date, cash flow in great shape, have achieved enough feathers for my hat. O yes, young enough to enjoy life, turnover growing year on year for the last 20 years. Definitely not indebted.

If a man becomes wealthy from charging the poor with high interest rates and costs, dragging them to court and using all sorts of collections methods to ensure payment, what kind of man is this?
Debt costs and interest rates that actually enslave them? Overselling them with loan and debt offers, knowingly that they will be exploited? What kind of man is this? Sh@t man, do you really understand?

Are you certain it didn’t create 195000 jobs. Tell an old man like me how you arrive at 200 000 jobs! Please!!

The alternative to 32% a year is often 30 a month from the loan sharks.

This seems like a major success story – if we can see where the profits go to.

“What really differentiates SEF from other lenders is that it is not trying to make a profit.” At 32%!!!

I was encouraged by the headline until I got here …

If the price of money, interest rate, is too high then do NOT borrow
I bet none of the people objecting to the level of interest charged by this business are in the business themselves. So, understand this: These loans are unsecured.
The NCR and the Acts and laws around lending ALWAYS side with the borrower. You are lucky to get payed; I say lucky because the borrower can always walk away. You’d think lending to someone who needs the money for purchase orders (“tenders”) will make the situation (provide some form of security) for the lender better but it does NOT.
I am sure some of you have heard of Royal Bafokeng Platinum lawsuit about some fence etc.
I Know this because I am in this business.

can somebody please clear this up for me? (including MAZIA, a ‘newcomer’ to Moneyweb 🙂

IF the risk is so low with this system, then WHY the 32% interest rate?

“What’s also interesting about SEF’s business model is that it actively seeks out borrowers through a network of nearly 600 loan development facilitators.
Borrowers are introduced by existing and trusted clients, which serves as the first line of credit defence. They are then allocated to a cell of five or six other borrowers. Every member of the cell undertakes to cover the loan repayments of the others”

Sounds like a Bernie Madoff Ponzi scheme to me.

Does the level of risk justify the average 32% interest or this is just pure exploitation of the very poor? If the credit impairment is so low or none existent and the business has been operating for over 30 years, I think it will be encouraging to lower the interest

feel free to open your own lender offering a lower rate. Or is it too risky?

Hi All

How many of you actually run or have a credit card.

I have come across numerous formal businesses being charged 24% per annum by the big 4 and they a have assets they can supply as surety. We lend to some of them as the banks refuse to unless they have AFS.

Also do any of you have a credit card – you pay 24 to 28% on anything you pay off.

I would love to hear more on the 200 000 jobs and also hope eventually interest rates could drop.

Grow up 19 out of 20 comments

14 – 16% is lowest interest you get on business that banks dont understand

Ciaran how do you arrive at 0.2%. According to their financials they took a R 6.2 m charge through their P&L in 2018 on a gross loan book (excluding capitalised interest. That is a credit loss ratio of 1.3% – compared to the loss rates taht you quote for the main banks – The major banks that tiptoed around unsecured lending have seen decent improvements in credit loss ratios in the last three years: the ratio was 0.73% for Absa in 2018, 0.8% for FirstRand, 0.53% for Nedbank and 0.56% for Standard Bank.

Similarly R 5 m of the book is non-performing. With short term loans like these you need to be cautious to compare it against the banks NPL ratios that includes significant mortgage books. Bad mortgages stay on your books for months if not years as you go through the legal system and trying to sell the repo house, these loans on the other hand you write off almost immeaditely and any recoveries you make are a bonus.

GinaSchroeder I have seen a lot of credit card holders maxing out their cards and having to repay them over 2 to 3 years (poor suckers). So if a 20 year long credit card holder clears his account every month it should show his/her credit worthiness. I have up to now not encountered any bank or other private lending institution that recognizes your credit card worthiness.

Hachmet I agree with your thought on reckless collection of debt and lending as I have seen a maxed out credit card holder owing almost R 2000 more after paying a R 2000 installment on a R 40,000 credit. Their was a SABS program where a attorney mentioned a law which clears you from any further payments if your total repayment is more than twice the original amount.

In duplum that’s what’s it’s called

IMHO, this looks like an impressively covered-up “hybrid” Ponzi scheme that lasted so long.

If there’s little risk of default, why the high interest rate?

(The answer is the ‘profits’ help carry the scheme to survive for such a long time…almost like Multi-level Marketing…where a new down-line member over-pays for (i) a product/service, while (ii) the excess funds the down-line referral commission which is the Ponzi-component)

The quoted 5-6 members potentially carrying the one in default (as it functions similarly as the referral commission down-lines).

The 200,000 “jobs” is a myth. It’s merely the “participants/members” into this scheme.

The term “introduced by existing/trusted” persons, is another Ponzi characteristic…a person gets easier deceited by a another he/she trusts, compared to complete stranger.

Why marketing it to the poorest of the poor? (Lack of financial education is where people are easiest exploited)

Another red flag is, nowhere on SEF’s website is any mention of belonging to a licenced FSB or FSCA accreditation….yet the SEF deals with the public’s money.

Cause for concern?

End of comments.




Instrument Details  

You do not have any portfolios, please create one here.
You do not have an alert portfolio, please create one here.

Follow us:

Search Articles:
Click a Company: