Regulators question Angelmoola

AngelMoola provides a matching facility for borrowers and lenders, where borrowers can publish their requirements on its website and lenders are allowed to bid to meet the loan on their terms.

"The main benefit for borrowers is that they can borrow relatively cheaply over shorter periods for small amounts," says its founder Brian Dalton.

Dalton says AngelMoola's business model is based on the Zopa and Prosper offerings in the US. In October 2007, entrepreneur Richard Branson's Virgin Money bought into a similar lending service called CircleLending, which facilitates loans between people who know each other as opposed to the other offerings which match up strangers.

"We have discussed the issue with all the relevant regulators; there do not seem to be any problems with a facilitation service such as AngelMoola," says Dalton.

But the regulators see it differently.

"If an organisation or company is taking deposits to service loans, it needs a banking licence," says SA Reserve Bank spokesperson Sam Henkeman. "If this company is not registered on the South African Reserve Bank website, it does not have a banking license. This then amounts to illegal deposit-taking."

Presently, Angelmoola - or Zelpy 2759 (Pty) Limited, the trade name listed on the Angelmoola website - is not registered with either the National Credit Regulator or the SA Reserve Bank.

Senior supervisor at the National Credit Regulator (NCR), Rajeen Devpruth, says there is a critical question mark around holding deposits that are subsequently being used to service loans. This would be in contravention of banking regulations. The second issue revolves around who facilitates the loan process - if person A lends to person B in a social nature then this would be acceptable. Having a facilitator lending somebody else's money would fall under the jurisdiction of the NCR.

The South African micro-lending industry is estimated to be valued at around R3bn a year; Dalton believes that social lending can become an accepted form of transacting in this space.

In less than two weeks, 276 users have registered on the Angelmoola site and there are 104 loans up for auction.

Before being able to bid on any loan auctions, users have to make a deposit into the AngelMoola lenders' account. Users can then either add funds to a pool (which has a guaranteed return on investment of 23% a year), or they can bid for loans themselves against their own set of lending criteria.

"AngelMoola revenue is based on charging borrowers an initiation fee together with a monthly loan management fee for the term of the loan, and from commission on any repayment protection insurance that the borrower selects," says Dalton. This insurance offering would fall under the domain of the Financial Services Board; it has confirmed to Fin24.com that AngelMoola does not presently have a licence to offer these services.

While the social lending concept may offer an interesting option for borrowers, this offering does not seem to comply with existing South African legislation and needs to be treated with some caution, until regulators have examined the concept of taking deposits to service loans more closely.

- Fin24.com