Short-term, high-interest loans have been part of the credit landscape for years. But not all microlenders are registered, which leaves desperate consumers who turn to loan sharks exposed and vulnerable to abuse. In May, microlender Wonga issued a report that found unregistered lenders or “loan sharks” to be more widespread than expected, with an estimated “40 000 operating in South Africa, at a ratio of 1:100 for every household in informal settlements”. The average value of a loan ranged from R500 to R1 000, with interest ranging from 30% to 50%.
Mashonisas operate without compliance with the National Credit Act, yet serve a vital role in poor communities because they give people who don’t otherwise have access to credit a lifeline.

Lenders should register with the National Credit Regulator if their loan book exceeds 100 credit agreements or R500 000. But while their small size doesn’t preclude them from complying with the NCA, it doesn’t mean they can operate as they please. Interest rates should not exceed the legal requirements, and collection methods such as retaining ID books, PIN codes and bank cards are illegal. The NCA allows for a maximum of 31% interest to be charged a year.

* Georgina Crouth is a consumer watchdog with serious bite. Write to her at [email protected], tweet her @georginacrouth and follow her on Facebook.

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