We’ve all heard of the term ‘loan shark’ but did you know that mashonisas, as they are also known, are growing by the thousands throughout South Africa?
A recent investigation carried out by short-term lender Wonga found that these loan sharks, which are non-registered credit lenders, are more widespread than previously thought. We know that the number of people needing access to credit is increasing (it has grown by around 12% from 2009 to 2017) but it’s surprising perhaps to learn that many people seek credit from unregulated lenders rather than traditional banks, and in other cases, rely on both the informal and formal lending markets in tandem.
There is an estimate of approximately 40,000 mashonisas operating in South Africa, which is a ratio of 1:100 for every household in informal communities.
The report highlights the growing trend of informal lending across the country and begs the question, why are so many people using these illegal loan sharks, rather than regulated lenders?
The report found that the average loan which was taken out from loan sharks was between R500 – R1,000. This means people are gaining access to small amounts of money, for probable one-off payments or unexpected bills, for instance. The interest on these kinds of loan ranges from between 30% – 50%.
Despite not offering any legal protection, many people are drawn to obtaining this kind of loan. Perhaps it has something to do with the simplicity of the application process, which becomes a matter of walking across the street and asking the local mashonisa compared to the comparative complexity that formal process require of filling in paperwork and proving identity. It may also have something to do with the perception some people have of formal lenders containing ‘hidden fees’, something which is not true; in fact the South African formal lending industry is more regulated and transparent than ever.
Likely the most influential factor dictating why some favour the mashonisa is the speed of the loan. Having access to cash in your hand in moments, is sometimes a necessity. Rather than waiting potential days for electronic funds to transfer via the formal lending route, many see the attraction of requesting and receiving the money within the same day in the same place.
So will this practice stay around for long? It certainly shows no signs of stopping. The challenge then becomes how we incorporate the seemingly essential role of informal lending into a safer and more regulated format.