Neelam Rahim | neelam@radioislam.co.za
3-minute read
14 February 2025 | 12:13 CAT

The IRR warns that the Expropriation Act could shake SA’s financial sector, making lending riskier and homeownership harder. (Photo by Business Day)

The impact of the Expropriation Act on South Africa’s financial sector has become a heated topic, with experts warning that it could destabilize banks and make lending significantly riskier. The Institute of Race Relations (IRR) has raised alarm bells over the uncertainty surrounding property rights and the potential consequences for financial institutions and consumers alike.

“Banks rely on property as collateral when extending credit,” explains Researcher Anlu Keev. “If property can be expropriated for less than market value or even for nothing, it creates immense uncertainty. Banks may struggle to recover loans, making them more cautious in lending.”

Under the current system, a home loan serves as the bank’s safety net—if a borrower defaults, the bank can sell the property to recover its funds. However, the new legislation could force banks to reassess their risk models. “If properties can be taken without fair compensation, the entire financial framework is in jeopardy,” warns Keev.

For consumers, the fallout could mean fewer lending opportunities and significantly higher interest rates. “If lending becomes riskier, banks will increase interest rates and tighten their credit policies,” Keev states. “This will make homeownership and business expansion far more difficult.”

With traditional banks at risk, there is speculation about the rise of alternative lending institutions, such as credit unions or privately funded risk-tolerant lenders. “This could open doors for loan sharks, who thrive in environments where formal lending is inaccessible,” cautions Keev. “The result? More predatory lending practices and an increase in unregulated financial activity.”

 While some argue that redistribution is necessary for addressing past injustices, others stress the importance of maintaining a stable investment climate. “If we want to improve economic conditions, we must make South Africa an attractive destination for investment, rather than introducing policies that deter capital inflows,” concludes Keev.

With debates continuing over the long-term ramifications of the Expropriation Act, financial experts and policymakers will need to find a delicate balance between economic transformation and financial stability.

Listen to the full interview on The Daily Round Up with Moulana Junaid Kharsany and Researcher Anlu Keeve here.