How do South Africa’s loan sharks compare to legal lenders?


If you are familiar with the term “mashonisa”, your mind may conjure up a very specific image when you picture somebody in the profession. Recent qualitative research conducted in an informal settlement in South Africa reveals that the mashonisa industry could be booming, and our preconceptions about who these “loan sharks” really are, may be far from the truth.

Often associated with ruthlessness and greed, the stereotypical mashonisa is often a untoward figure, associated with intimidation and aggression. In reality, it’s now thought that approximately 40,000 mashonisas may now be operating across South Africa in relative peace, perhaps centred around the stabilizing force of local communities.

Humiliation & high interest rates

Although almost none of those interviewed for the Wonga study reported violence in conjunction with informal lending, they did often mention humiliation taking place as part of the transaction.

Borrowing from a mashonisa appears rarely to be a private affair, with borrowers frequently made to publically wait for lenders before being forced to demonstrate deference during the borrowing process. This community awareness of who is lending and who is borrowing may go some way towards protecting borrowers from violence (who would want to borrow from a cruel or unfair mashonisa?), while also ensuring the lender is repaid (using the threat of public shame).

Humiliation may be less painful than violence, but it’s still not a prospect many would relish, particularly with reported interest rates of 30-50%. Although mashonisa loans are typically small (R500-R5,000), the accrual of interest is most likely swift and dramatic for informal borrowers. Why then would an individual choose to make use of a mashonisa rather than a legal lender?

Mashonisa vs. formal lender

Formal lenders do not require borrowers to “humiliate” themselves in order to arrange alone. Their highly regulated practices are designed to protect consumers from ill-treatment, including violent punishment for non-payment. These regulations also protect borrowers from a host of other ills, including unfair lending practices.

Interest rates offered by formal lenders are far lower than those touted by mashonisas. Even with fees included in the cost, repayment would only very rarely exceed more than 30% of the original loan amount (if the loan was repaid on time). So why would anyone choose a mashonisa over a regulated lender?

A key reason behind the continuing growth of the mashonisa in South Africa may be accessibility. Not only are bricks and mortar lenders frequently inaccessible for consumers in lower socio-economic groups, short term loans themselves are often not accessible for everyday South Africans, especially following 2005’s changes to lending regulations, which tightened up lending criteria. With the cost of living on the rise, many appear to be in greater need of fast finance.

An individual may be unable to access a conventional loan if they are not in formal employment, are unable to provide proof of address, already have an impaired credit history or don’t have any credit history – the list goes on. With this in mind, it’s little wonder than many people are now making frequent use of South Africa’s growing number of “loan sharks”. It’s entirely possible that they simply have no other choice.

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