Johannesburg - Social lender Angelmoola says it now complies with South African financial and credit legislation and also conducts validation and background credit checks on all borrowers, after Fin24.com reported that the company was an unregulated money lender.
In May, regulators questioned Angelmoola's business model and whether consumers were adequately protected.
Angelmoola is now also a registered credit provider with the National Credit Regulator (NCR).
When the concept was brought to the attention of South African regulators, they were unsure whether the service should be regulated by the banking regulator or the NCR.
Concerns were raised about the fact that there was no protection for lenders should borrowers default; nor was there any way in which credit risk could be measured.
Social lending
Social lending is an unregulated form of lending in which private borrowers and lenders are matched up. There are different models, but this typically involves borrowers listing their requirements on an electronic platform and a lender then assessing potential loans and deciding the terms in which they will lend money.
Lenders get the option to bid to service different loans in an auction-style online environment.
British entrepreneur Richard Branson and his company Virgin Money bought social lending website CircleLending in 2007. To highlight the value of social lending, Branson said that his initial business was funded by a loan from his Aunt Joyce which got him off the ground.
Angelmoola CEO Brian Dalton said: "With Angelmoola, lenders get a completely new and unique asset class to add to their existing portfolio."
New ball game
For consumers who have spent the last seven to 10 years with access to easy credit and capital, the current financial crisis has been tough to adjust to.
Due to high-risk lending practices and the subprime lending crisis in the US housing market, many financial institutions have collapsed or have been bailed out by US and European governments.
As a result the credit taps have been switched off and consumers are not quite sure what to do.
Even South African banks, who many have described as being immune to the European and US banking crisis, have begun to tighten up. A few months back First National Bank confirmed that it would be reassessing a number of home loans it had approved. This week, Absa has been in the spotlight for a decision to force customers to apply to have access to funds sitting in their access bond facilities.
Dalton said: "Consumers are feeling the pinch at a time where there is no end in sight for the turbulence in the international economy, but debt consolidation and debt relief are a far way off as banks are reticent to lend money."
A visit to the Angelmoola website gives some idea of the size of loans borrowers may be looking for. Loans listed include amounts of R60 000 and R114 000.
Despite a relatively upbeat tone from Dalton on Angelmoola's prospects and the concept of social lending in South Africa, there are warning signs.
A senior executive at one of South Africa's big four retail banks, who wishes to remain unnamed, has rubbished claims that consumer credit and spending is coming under control.
The executive told Fin24.com on Thursday: "There are South Africans out there with between 20 and 30 lines of credit with no ability or intention to repay, who are now seeking protection from debt counsellors; as soon as the counsellor has protected them from creditors, they then go off and seek other lines of credit."
- Fin24.com