Durban - AS THE economic impact of the lockdown continues to ravage the country, low-income households are spiralling further into debt by borrowing money from loan sharks to keep afloat.
This was according to Pietermaritzburg Economic Justice and Dignity Group researcher Julie Smith, who said their studies had revealed that women were going to “mashonisas” or loan sharks for money.
She said the group had interviewed women from Durban, Pietermaritzburg, Joburg, Cape Town, and other areas. They found that in KwaZulu-Natal, loan sharks had increased the interest on the loans by 30% to 40%. The figure was higher in Joburg and Cape Town where loan rates shot up by 50%, Smith said.
“It’s not sustainable for the women. The debts create a cycle where women now have to borrow from loan sharks to pay other loan sharks. Going to formal banks is an issue as they do not qualify for loans because they did not have property as collateral. They are excluded from the system,” Smith said.
In addition, she said, government grants were not enough to cover costs such as food, electricity and taxi fares which account for a large portion of their income.
“As resilient as women are, I don’t know how long this will hold out. Also, with the high unemployment rate in South Africa, I don’t know if the situation will get better.”
Neil Roets, the chief executive of Debt Rescue, also painted a grim picture for the near future. He said many people did not realise that the “payment holiday” offered by banks was only temporary, and that banks would soon start to “aggressively” want their monies paid back as they had shareholders to report back to.
Roets said they were not getting as many clients as they normally would since the lockdown. However, they
were getting more queries from worried South Africans. Roets said it should be noted that South Africa was facing uncertain times.
“What is positive is that South Africa has strong laws when it comes to dealing with debt and it is the only country where one can place their home as part of debt review.”
Economist Professor Bonke Dumisa said the number of people who have applied for credit has been in line with how the economy was performing. Dumisa looked at research conducted by the National Credit Regulator, which said the situation was not any worse than when the lockdown had begun.
“The National Credit Act also made it hard for people to apply for new loans, which leads to people going to loan sharks who operate illegally.”