In short
The test is never how an arrangement looks. Presentation is the cheapest thing to buy. The test is whether anybody can tell you who owes the money, under which document, and what happens if they do not pay.
Behind that sits one question: where does the return come from? A risk somebody declined, an inconvenience, or a capability are all real answers. New participants' money is not — and an arrangement funded that way is not lending, whatever it is called.
01The whole test, in three questions
- Who owes me the money? A named party, in a document you can read. Not a platform, not a programme, not a strategy.
- Under which document? One that exists now, that you can be shown before you pay, and that says what you think it says.
- What happens if they do not pay? A process you can describe in order, with a realistic duration and a cost.
Three answers in writing. If any of them cannot be given, that is your answer — and it is the answer regardless of how impressive everything else is.
02Where does the return come from?
| The answer | What it means | Verdict |
|---|---|---|
| A risk somebody else declined | You are being paid to take a chance a bank would not | Legitimate. Now check the price matches the chance. |
| Inconvenience | Your money is committed, illiquid, unsellable | Legitimate. This is most of private lending. |
| Speed or specialism | You can act faster, or understand an asset better | Legitimate, if the capability is real. |
| “The strategy”, “the system”, “arbitrage” | Nobody has named a borrower | Stop. |
| New participants' money | Earlier participants are paid from later ones | Not lending. Report it. |
A scheme has no borrower and no underlying loan. That is its defining feature, not its rate — and a modest, believable rate is a more effective disguise than a spectacular one.
03The line it most often crosses
Taking deposits from the general public as a regular feature of a business, and using that money to grant loans, is the business the Banks Act reserves to registered institutions. No person may conduct it unless registered, and contravening that is an offence.
So an arrangement that collects repayable money from members of the public in order to lend it on, with nobody registered or licensed for that, has a problem that is not fixable by better paperwork. Unlawful deposit-taking is the term, and it is a criminal matter rather than a civil one.
This is also the honest reason to be careful about an arrangement in which you give your money to one person who lends it on in their own name. The structure that avoids the problem is one where each lender contracts for their own share, or where the entity in the middle is properly registered or licensed.
04The tactics, named
These are not evidence of fraud on their own. They are evidence that you are being sold to, and selling pressure is where decisions go wrong.
| What you hear | What it is doing | What to do |
|---|---|---|
| “This closes on Friday” | Removing the time you need to check | Let it close. There will be another. |
| “Only a few allocations left” | Manufacturing scarcity for something unlimited | Ignore it |
| “Guaranteed”, “risk-free”, “capital protected” | Describing a loan as something no loan is | Ask who guarantees it, and what they are worth |
| “Everybody here is in it” | Substituting other people's judgement for yours | Other people's confidence is not diligence |
| “Bring somebody in and you earn more” | Paying for recruitment rather than for lending | Leave |
| “Don't overthink it” | Discouraging the exact behaviour that protects you | Overthink it |
05Where to take it
If something is wrong, there is somewhere to take it. Use the one that matches the conduct.
- Credit providers and lending conduct — the National Credit Regulator. Its register of registered credit providers is public and free to search.
- Financial services, advice and licensed products — the Financial Sector Conduct Authority.
- Suspected unlawful deposit-taking — the South African Reserve Bank, which investigates it.
- Suspicious transactions and money laundering — the Financial Intelligence Centre.
- Suspected fraud — the police. A scheme is a crime, not a bad investment.
- Conduct by an Association member or partner — the Association's complaints process, which publishes what it can and says plainly what it cannot do.
Reporting is worth doing even when your own money is gone. It is usually the only thing that stops the next person losing theirs. That closes part three. Part four is about doing this properly.