Township loan sharks (‘mashonisas’) offer quick and easy access to small, short-term loans, despite not having any legal protection. They are illegal and unregulated. Karen Sandison/African News Agency (ANA)

CAPE TOWN – Whether viewed as debt relief for the poor, or a mechanism to expunge debt, the National Credit Amendment Act is likely to plunge the working class deeper in the red.

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It promises to make debt intervention accessible to a market that isn’t economically viable for debt review – those earning less than R7 500 a month, with unsecured debts of up to R50 000. 

The banking sector has kicked back, saying President Cyril Ramaphosa ignored numerous overtures to discuss its ramifications.

The Banking Association of South Africa says, in its current form, the act will restrict members’ ability to lend to this vulnerable market and increase the cost of credit. It will also weaken the fight against illegal lenders, or mashonisas, who will become the only avenue through which the working poor will be able to access credit. 

A Wonga report from 2018 notes “mashonisas” operate in a high-risk market so they charge interest rates far in excess of the maximum allowable rates. “They are extremely accessible, with no paperwork or formal vetting procedures. Formal affordability and income assessments are not conducted, but loan values are linked to income.”

Neil Roets, chief executive of Debt Rescue, warns the poor will be excluded from accessing loans in future. “The very group that the debt forgiveness programme is allegedly aimed at according to the Department of Trade and Industry – retrenched workers and low-wage earners – will be the very people who will not be able to source a line of credit when this policy becomes law.”