The rise of microcredit ‘control fraud’ in post-apartheid South Africa: from state-enforced to market-driven exploitation of the black community

ABSTRACT

The end of apartheid in South Africa in the early 1990s did not see the envisaged end to the exploitation of the black South African population, but instead saw simply a shift from state-backed exploitation to market-driven exploitation. This trajectory is especially germane to the country’s microcredit industry, which has spectacularly and wilfully enriched a narrow white male elite while simultaneously helping to fragment and destroy the local rural and urban economies of the black poor. As this article demonstrates, a major aspect of this one-sided enrichment process has involved ‘control fraud’, the process whereby the CEO and senior management of a financial institution use their seniority to defraud customers, shareholders, the government and the general public as they go about maximising their own private short-term financial gains. Already a problem elsewhere in the global South, South Africa has thus joined the growing list of countries that have seen control fraud in the microcredit sector undermine and block progress towards more productive, sustainable and equitable local economies.

RÉSUMÉ

La fin de l’apartheid au début des années 1990 en Afrique du Sud n’a pas pour autant mené à la fin, prévue, de l’exploitation de la population sud-africaine noire, mais plutôt à une simple transition d’une exploitation par l’Etat à celle par le marché. Cette trajectoire est particulièrement pertinente dans le cas de l’industrie du micro-crédit du pays, qui a spectaculairement et sciemment enrichi une élite masculine et blanche très restreinte tout en contribuant à la fragmentation et à la destruction des économies des populations noires pauvres, qu’elles soient locales et rurales, ou bien urbaines. Comme le démontre cet article, un aspect majeur de ce processus d’enrichissement unilatéral implique une « fraude par le contrôle », c’est-à-dire le processus par lequel le PDG et autres cadres supérieurs d’une institution financière utilisent leur rang afin d’escroquer leurs clients, les actionnaires, le gouvernement ainsi que le public dans son ensemble tandis qu’ils maximisent leurs propres intérêts financiers court-termistes. Déjà un problème dans d’autres endroits de l’hémisphère sud, l’Afrique du Sud a ainsi rejoint la liste croissante de pays qui voient la fraude par le contrôle dans le secteur du micro-crédit saper et bloquer le progrès vers des économies locales plus productives, soutenables et équitables.

KEYWORDS:

• Microcredit
• microfinance
• control fraud
• local economic development
• South Africa

MOTS-CLÉS:

• Micro-crédit
• micro-finance
• fraude par le contrôle
• développement économique local
• Afrique du Sud

Disclosure statement

No potential conflict of interest was reported by the author.

Notes on contributor

Milford Bateman is a Visiting Professor of Economics in the Department of Economics and Tourism, Juraj Dobrila University at Pula, Croatia, and an Adjunct Professor in Development Studies at St Mary’s University, Halifax, Canada. He is the author of Why Doesn’t Microfinance Work? The Destructive Rise of Local Neoliberalism, published by Zed Books in 2010.

Notes on contributor

Milford Bateman is a Visiting Professor of Economics in the Department of Economics and Tourism, Juraj Dobrila University at Pula, Croatia, and an Adjunct Professor in Development Studies at St Mary’s University, Halifax, Canada. He is the author of Why Doesn’t Microfinance Work? The Destructive Rise of Local Neoliberalism, published by Zed Books in 2010.

Notes

1 For example, this ‘stuffed and starved’ problem is especially acute in Africa. Because it is a risky and unprofitable market segment to serve, the formal SME sector is in crisis all across Africa because of the serious shortage of start-up and investment capital. Meanwhile, because it is a highly profitable market segment to serve, the microcredit sector has already over-indebted millions of poor individuals in Africa and its problem now is that it can no longer locate enough new clients willing to access a new or larger microcredit.

2 A major impact evaluation of Banco Compartamos carried out by a team of US-led economists and long-standing microcredit advocates (see Angelucci, Karlan and Zinman 2015) found no real transformational impacts (see also Correa and Vidal 2019; Bateman 2013b).

3 This was Unifer, the majority-owned microcredit unit of South Africa’s second largest bank, Absa, which was itself a subsidiary of the United Kingdom’s Barclays Bank, and Saambou Bank, South Africa’s seventh-largest bank and the country’s leading microcredit bank.

4 See ‘Saambou case thrown out’, Moneyweb, 7 May 2008. Accessed on August 23, 2016, at http://www.moneyweb.co.za/archive/saambou-case-thrown-out/.

5 See ‘Another sell signal for Capitec, Abil – 90% of Garnishee Orders are flawed or fraudulent’, BizNews.com, September 6, 2013. https://www.biznews.com/interviews/2013/09/06/another-sell-signal-for-capitec-abil-90-of-garnishee-orders-are-flawed-or-fraudulent/.