Short-term, high-interest loans have been part of the credit landscape for many years. But not all microlenders are regulated - many are flying low under the radar. 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 “40000 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 R1000, with interest ranging from 30% to 50%.
These “mashonisas” (township loan sharks), says Wonga, offer “quick and easy access to small, short-term loans, despite not having any legal protection”.
Mashonisas are illegal and unregulated, and operate without compliance with the National Credit Act (NCA). Yet they serve a vital role in poor communities because they give people who don’t otherwise have access to credit a lifeline.
Brett van Aswegen, chief executive of Wonga SA, said: “There is no clear demographic that identifies a mashonisa - they aren’t all big, scary men. They are ordinary people from the community who have some cash available and see this as a viable form of employment. Start-up cash can be as little as a few hundred rand but are typically payouts from a retrenchment settlement or provident fund.”