This paper will evaluate the micro-finance sector in South Africa, its scope and development, and its role in the financial sector and the economy more generally. It is informed by the premise that households and institutions save and invest independently, and that the financial system’s role is to intermediate between them and to cycle available funds to where they are needed. Consequently the primary objective of this paper is to understand the key factors that affect the micro-finance (MF) sector. \n\nThe MF industry was formally (legally) established in 1992 when the state issued an Exemption to the Usury Act that removed interest rate ceilings on small loans under R6,000.00 with a repayment period of less than thirty-six months. Since then there has been phenomenal growth of a formally non-existent industry, providing a good example of how micro-financiers were able to develop given a favourable incentive system. The rapid growth of the industry provided the impetus for a second Exemption to the Usury Act in 1999, where revisions to the amount of small loans were increased from R6,000.00 to R10,000.00, the Micro Finance Regulatory Council (MFRC) was established to manage the sector, and new regulations to govern the way that micro-loans could be administered and repayments collected were added. However, the growth of the industry has raised as many questions of the financial sector’s operation as it has answered those concerning a conducive regulatory climate. Firstly, why has there been such rapid growth in the industry given that SA has a fairly sophisticated financial sector in the first place? Partly related to this is the question of who are the end-users of the loans supplied by the MF industry. Put differently, we need to understand the determinants of the demand for debt, and the segment of society who demands the services supplied by the MF industry. We then need to analyse the parameters of the regulatory framework and identify how lenders are affected by it. Lastly we will provide insights into the structure and performance of the sector in an attempt to augment the discussion. \n\nThe rest of the paper proceeds as follows. Firstly, the depth, structure and efficiency of South Africa’s financial sector are discussed in comparative perspective in order to contextualise the discussion. Secondly, the structure and size of the industry are estimated. We then proceed to investigate the demand for debt using the Income and Expenditure Survey (Statistics South Africa, 1995) and an adjusted dataset compiled by Wefa Southern Africa for 1999. Lastly, we turn our attention to the regulatory framework of the sector and the degree to which it complies with international best practise. \n\n