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The rise in unsecured lending has cast doubt on the effectiveness of the National Credit Act in South Africa. Reckless lending was seen rising since 2006 and plateauing in 2009. Could this be evidence of the effectiveness of the National Credit Act (NCA) curbing reckless lending household debts? This study embarks on finding whether reckless lending was present in the Pre-NCA period running from 1994 to the end of 2nd quarter of 2007 when the NCA was enacted. Further in this study, the effectiveness of NCA in curbing reckless lending in the Post-NCA period starting from the 3rd quarter of 2007 to the 2nd quarter of 2014. Using the Johansen Cointegration analysis and Vector Error Correction Model, long run and short run Granger causality tests are done with the household debt as a dependent and debt service coverage ratio, household debt to disposable income ratio and disposable income as independents. The results from the tests done provide convincing evidence that reckless lending indeed was present in the Pre-NCA period and there is evidence showing the curbing of reckless lending in the Post-NCA period.

Effectiveness of the national credit act of South Africa in reducing household debt: a Johansen cointegration and VECM analysis