Financial Regulation, Credit ConsumptionAnd Economic Growth–An Analysis Of The National Credit Act In South Africa

Abstract

Credit consumptions are as old as human creation. Evidence suggests that more than two third of the consumer population in the developed world lives on credit, and the volume of trade credits have grown steadily over the past decade. The increase in credit consumption has hurled an unprecedented level of economic growth. However, recent strains placed on the macroeconomic fundamentals by credit mismanagement have resulted in a series of policy interventions to ensure a guided process of credit consumption. While credit consumption regulation is not a new phenomenon, the recent spates of interventions are essential to ameliorate opportunistic behaviours (such as moral hazards and adverse selection) not only among major lenders, but also among the entire market participants. This article estimates the effects of changes in regulation as regards the rate of credit consumption and ultimately, economic growth in South Africa. Using quarterly dataset from various sources between 2007 and 2012 in regression analyses, it was found that an increase in credit consumption has precipitated an increase in economic growth. The study also uncovers that the regulatory interventions by the South African government play significant roles in reducing reckless (secured) lending, during the period under consideration at the expense of an increase in unsecured lending.