Loan Sharks Fill the Void Left by South Africa’s Formal Lenders


The latest research shows a surprisingly large proportion of those in South Africa’s informal communities rely on ‘mashonisas’ to make ends meet.

The credit market in South Africa has received much press in recent years as more and more people turn to money lenders to maintain their lifestyles and get by. The latest research has shed some light on exactly where South Africans are borrowing money from, with a surprisingly large proportion of those in informal communities relying on the services of unregulated lenders, so-called loan sharks or ‘mashonisas’, to make ends meet.

The research, conducted by research and analytics firm Eight20 on behalf of short-term loan provider Wonga SA, looked exclusively at the role loan sharks are playing in the South African credit market, and what it found is surprising.

What are mashonisas?

The term ‘mashonisa’ is used to describe the illegal and unregulated lenders who operate in many of South Africa’s townships and informal communities. Mashonisas are usually local people who are well-known in the community who view money lending as a viable form of employment and often start their businesses with one-off payments from pensions or redundancy packages.

Before the results of the research were published, it was thought that mashonisas were relatively few and far between. However, it’s been found that they’re actually a much more widespread phenomenon than was first thought, with the researchers estimating there are around 40,000 mashonisas in operation across South Africa.

These mashonisas, who operate outside the obligations imposed on formal lenders by the National Credit Act, generally offer small, short-term loans, typically for a period of a month. The loans, which range between R100 and R5,000, are used by borrowers to manage their monthly cash flows and finance immediate needs such as transport, cell phone airtime and prepaid electricity.

Why are mashonisas so popular?

Having revealed the extent of mashonisa lending in South Africa, the researchers’ next step was to find out why the services they provide are so popular. Perhaps surprisingly, they found that this type of borrowing is not only being used by those who are unable to access credit from formal sources. In fact, in many cases, informal lending of this type is being used in combination with formal finance to fulfil different needs.

It is the benefits associated with this type of informal lending that are leading many borrowers to choose the mashonisa over regulated alternatives. Not only can money be accessed extremely quickly from mashonisas, with the loan sharks embedded in the local community, but the pricing structures used are also extremely transparent.

Rather than the complicated APRs, admin fees and hidden charges that are sometimes associated with formal lenders, many mashonisas charge 30-50 percent interest regardless of the size or term of the loan. Although this is clearly expensive, with a R200 loan for 30 days costing a total of R260, it does make it very easy for borrowers with low levels of financial literacy, which is a common problem in South Africa, to know exactly how much they have to repay.

Formal lenders need to step up

The research makes it very clear that unless formal lenders create new products to fill the need for quick cash loans with simple pricing structures, the mashonisas are here to stay.

Commenting on the research, Brett van Aswegen, CEO of Wonga SA, said: “Now we understand why people are using the informal credit market, it does raise questions about how formal lenders could mirror some of the good points that have come through in the study, such as ease of access and a simple costing strategy, to create shared value for consumers.”

Have you ever borrowed money from a mashonisa? What was the experience like for you? Please share your thoughts in the comments below.

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