Explainer: Why Capitec Bank is in the hot seat

What is Capitec?

It’s a South African micro-finance provider which does business mainly with low-income South African consumers. It has been garlanded with awards for its innovative practices and high share prices.

What is Viceroy?

Good question, because until a few months ago few people in South Africa had heard of them. Viceroy is a financial research outfit consisting of three people working between New York and Australia. Viceroy is a deliberately low-profile company with a Wordpress website, on which it describes itself as “a group of individuals that see the world differently”.

Viceroy started releasing reports on big companies in 2016, but only attracted South African interest after publishing a report exposing Steinhoff a day after the company admitted accounting irregularities. Now Viceroy has gone in guns blazing for Capitec.

So they’re like a financial version of activist group Anonymous?

That might be pushing it, because there is speculation that Viceroy also shorts stocks on the basis of its information. There is definitely a financial motive to their research as well as an altruistic dimension. Earlier this month, they told Fin24 that they had made donations to South African charities after the Steinhoff exposure, and claimed: “Our ethos is protecting consumers, investors and integrity by making sure all the facts are known.”

What does Viceroy have to say about Capitec?

Nothing flattering. In a 33-page report released on Tuesday morning, Viceroy says that its analysis of Capitec’s reports, study of legal papers and interviews carried out with former Capitec clients and employees reveals a South African enterprise engaging in “predatory finance”.

Capitec is preying upon low-income South Africans, Viceroy suggests, by offering instantly accessible credit via ATMs to people. Customers can be charged interest rates of 155% on a single loan. Viceroy has also obtained affidavits from clients who say that when their first loans with Capitec became too big, Capitec granted them further loans – which clients could not afford – to repay the first loan.

In effect, Viceroy charges that Capitec is acting like a snazzier version of a backstreet loan shark.

Why would Capitec offer loans to people who can’t afford them?

That’s the question which cuts to the heart of the micro-finance industry in South Africa. In Capitec’s case, Viceroy claims that the lender took home more than 20% of its 2017 earnings in loan fees. Viceroy says that Capitec also concealed the extent of its unpaid loans by constantly issuing new loans to refinance the old ones.

Are Viceroy’s claims true?

That remains to be seen. Its Steinhoff report was “hailed as highly professional and accurate”, according to Moneyweb.

The South African Reserve Bank, however, told Fin24 on Tuesday morning that according to the information SARB has at its disposal, Capitec is “solvent, well capitalised and has adequate liquidity”.

What does Capitec have to say for itself?

Its sole public statement on the matter at time of writing had been via social media. Capitec tweeted on Tuesday morning that it had “taken note” of the report. “We are currently in the process of investigating the report in detail and will respond immediately,” it said.

In a hastily sent-off memo to shareholders, however, Capitec was conceding nothing. It described the Viceroy report as “filled with factual errors, material omissions in respect of legal proceedings against Capitec and opinions that are not supported by accurate information”. DM

This is a developing story. Daily Maverick will be bringing you further information and analysis.