A mashonisa gives a customer a cash loan in an emergency. These loan sharks play a crucial role in many communities, the writer says. Picture: Karen Sandison/African News Agency (ANA)

Johannesburg - “Mashonisas will never go away. They’re here to stay.” These were the words of Brett van Aswegen, chief executive of Wonga Finance SA, on the loan sharks who are the heartbeat of the unregulated lending system that helps many with loans.

Despite that, mashonisas are regarded with negativity and as being violent when they want to be repaid.

A new report by Eighty20, commissioned by Wonga Finance SA, said these stereotypical predatory loan sharks represent a fraction of the estimated 40000 informal lenders operating in South Africa.

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Beware of loan sharks

For the most part, mashonisas are deeply entrenched in their communities and provide a lifeline - albeit an illegal one - for many low and middle-class South Africans struggling to make ends meet.

The study focused on Khayelitsha, conducting focus groups and interviews with lenders and their customers. Here, mashonisas can be found on nearly every street, and they hardly fit into the “rough, abusive” stereotype. Half of mashonisas are women, and they come from all ages and levels of education.

“Mashonisas are entrenched in these communities,” Van Aswegen said.

“They’re a part of the social fabric in the community and they are widely accepted as a normal course of life in the community in which they operate.”

Van Aswegen said he went into the research with a negative view of mashonisas, but learning about their role in society changed his outlook. He saw the positives and negatives to illegal lending, and recognised that they were necessary to communities.

“I realised that mashonisas are not all bad,” Van Aswegen said. “They service a need in the market for people who urgently and desperately need money that helps them get by to the next paycheque.”

Many customers of mashon- isas have no access to formal credit and are forced to borrow money for immediate, unplanned expenses. Someone might seek a small loan if they have no money for transport to work or food, and then agree to pay it back within 30 days.

In focus groups, customers explained that they liked to use mashonisas because they can walk to a lender’s home and immediately get cash without documents or a long vetting process. They said the high 30 to 50% interest rates didn’t deter them, as the cost was the same if you take out a R500 loan, you pay back R750 every time.

Even though formal lending is ultimately far less expensive, and with interest rates 10 times lower, community members are deterred by the confusing fee structures; the need to provide identification and documentation; and the time and costs of travelling to a lender.

Surprisingly, informal lending often operates in tandem with more formal services to fulfil different needs. One is used for small, short-term loans while the other is for bigger, planned expenses.

Van Aswegen said there are some major pitfalls in the informal market. Although the majority of mashonisas Eighty20 interviewed said they wouldn’t harm customers who didn’t pay their loans on the agreed upon date, even those who are non-violent heavily shame their customers.

“The process is humiliating,” Van Aswegen said. “It’s rooted in power and shame.”

A customer must sit outside the home of the mashonisa until they are called inside, at which point they are sometimes made to bow. This alone is enough to cause some customers to seek the anonymity of formal lending.

When a person fails to pay on time, a mashonisa might come to take assets from their client. Even if the loan was small, the lender might take an expensive TV, sell it, then keep the extra profit, he said.

“Although mashonisas operate illegally, customers said they would not want them to be outlawed, though it may not even be possible to do so.

“Customers depend on them and I don’t think they want them to be regulated,” Van Aswegen said. “It would be cutting off a lifeline.”

Wonga decided to conduct a study on informal lending, because as a member of the credit market, they wanted to know where customers declined by Wonga went.

By understanding the mysterious informal lending market, Van Aswegen thought there could be potential to tap into the market. But now that the report has been published, Van Aswegen thinks it would be “virtually impossible” to operate in these markets.

“You can’t control the uncontrollable. But they’re here to stay.”

The Star