This thesis analyses the cost of credit in the micro-finance industry in South Africa. The study situates micro-lending agreements within the law of contract, beginning with an examination of contractual fairness in terms of the common law: the fundamental principle of freedom of contract that underpins the common law of contract; the principle that agreements contrary to public policy should not be enforced; and the impetus given by constitutional values that inform public policy. In regard to moneylending transactions, common law usury law will be explained. The study then goes on to trace the origins and rapid growth of the micro-finance industry which was made possible by its exemption in 1992 from the Usury Act 73 of 1968. The upshot of this development was that registered micro-lenders have for nearly 14 years charged excessive interest rates, and continue to do so. The dire socio-economic impact of these high interest rates on individual consumers and lowincome communities is then demonstrated: how borrowers of small loans soon become over-indebted; the loss of billions of rands every year to low-income communities in the form of interest on micro-loans. The study then shifts to the legislative response to the need for consumer protection in regard to consumer credit. The extensive credit law review process is explained, resulting ultimately in the National Credit Act 34 of 2005, which allows the Minister to prescribe limits on interest rates and fees in all sectors of the consumer credit market. The prescribed limits on the cost of credit in the micro-finance sector are thoroughly explained and analysed, with particular reference to the implications of each element of the credit costing structure, and the combined impact of the total cost of credit on different types and sizes of loans. The envisaged maximum interest and fees will markedly alter the positions of micro-lenders and consumers, and receive careful analysis. The study closes with a summary of findings in the thesis, which includes suggested amendments to the National Credit Regulations and a review of possible legal challenges to the high cost of credit on smaller loans.

LL.M. (Banking Law) / The charging of interest and the variation thereof throughout the term of a credit agreement has, in a modern South Africa, become the rule rather than the exception. This is so because in a constant evolving economy it will not be viable for large financial institutions to commit themselves to fixed interest rates especially where a credit agreement such as a mortgage agreement may extend over many years. With this comes the question as to the extent of a credit provider’s discretion to vary interest rates and the manner in which it purports to do so. Naturally where the National Credit Act finds application in respect of a credit agreement the provisions thereof relating to interest and the variation thereof will determine whether a clause allowing a credit provider to vary the interest rate unilaterally is valid and enforceable. However in instances where the National Credit Act is not applicable to a certain credit agreement, especially in the case where the consumer is a juristic person, the interest rate levied and the variation thereof will fall to be decided in terms of the common law. The application of the common law in this regard is not without difficulty and there have been many conflicting decisions of our courts in this regard. Whilst the supreme court of appeal has finally decided on the matter of discretionary interest rate clauses it is no doubt that this issue will surface for many years to come. This dissertation explains the comparative positions of interest rate and variable interest rate clauses in terms of the National Credit Act and the common law.