Mashonisas make good profit on loans

Informal cash lenders are as plentiful as one for every 100 households, a recent study has found.

In the Informal Lending Report, commissioned by short-term lender Wonga, it was found that informal lenders, also referred to as “mashonisas” or loan sharks, appear to be more widespread than anticipated, are deeply socially rooted, and often operate without any legislative boundaries”.

Mashonisas are defined as neighbourhood money lenders who are not registered with the National Credit Regulator (NCR) as required by legislation.

These lenders appear to charge between 30 and 50 percent interest on loans of between R50 and R5000 (with the majority between R500 and R1000).

The research was conducted last year in Khayelitsha and showed that there are approximately 40 000 informal lenders in South Africa, at a ratio of 1:100 households in informal settlements.

The report comes on the back of a sharp incline in the percentage of credit users in South Africa – from 57% of the adult population being active credit users in 2008 to 69% in 2017.

The NCR’s Rishana Singh confirms that credit consumers increased from over 17.5 million in December 2008 to more than 25.3 million in December 2017 according to the Credit Bureau Monitor report.

This is due to factors such as population growth, economic pressures, credit accessibility and consumer awareness, Singh says.

Brett van Aswegen, CEO of Wonga SA, explains: “With the change in credit regulations in 2015, we have witnessed a tightening in credit extension across the local market, despite the growth in credit-active customers.

“We asked ourselves the questions: where does a customer go when they can’t access the formal credit market, and what does that mean to those operating in the highly regulated, formal credit market?

“This led us to investigate the informal lending market in South Africa. We wanted to know how this market works and why customers use this market.”

Mashonisas are illegal and unregulated, which means their operating models are not impacted on by regulations and they incur no compliance costs in terms of the National Credit Act, Van Aswegen says.

“They are widely understood to be ruthless operators playing hard in a brutal market and are reputed to employ sometimes excessively robust collection methods and, by definition, their customers do not enjoy legal protection.

“However, while this research confirmed the high cost of credit and tough collection practices, the report found that many are ‘not the monsters that media make them out to be’ and that people who use mashonisas often use them because they find them easier and more convenient to use than the formal credit market,” he says.

Singh explains that credit providers are required to do affordability assessments.

“Only those who can afford to repay should be granted credit.”

Registered credit providers have to pay an annual renewal fee to remain registered as a credit provider. If they do not pay their annual renewal fee, their registration will lapse and all credit agreements entered into after lapsing will be unlawful, Singh adds.

While some people use them as a substitute for formal credit, many people access formal and informal credit for different reasons, and often at the same time, the report revealed­.

“The report also illustrated a known but often ignored fact about mashonisas – that they are a socially embedded phenomenon that is widely accepted as part of the social fabric. Anecdotal evidence from both mashonisas and borrowers suggest the practice has grown significantly in recent years and is not likely to disappear.

“The phenomenon is by definition regulation proof and is almost certainly ineradicable.

“It is clear that informal lending is embedded in the social fabric of communities in which they operate.

It would be naive to think that they can be regulated like the formal market. The sheer scale of mashonisas would make this virtually impossible and I don’t believe customers would want mashonisas threatened as they depend on them on a monthly basis to get by,” he says.

“The NCR is currently embarking on a campaign to get all unregistered credit providers registered, through the mobile registration office that moves around the country to assist unregistered credit providers to register.

“In addition the unregistered credit providers are continuously referred to the tribunal so that fines can be imposed on them for operating a business of a credit provider without a licence.”

Informal cash lenders are as plentiful as one for every 100 households, a recent study has found.

In the Informal Lending Report, commissioned by short-term lender Wonga, it was found that informal lenders, also referred to as mashonisas or loan sharks, appear to “be more widespread than anticipated, are deeply socially rooted, and often operate without any legislative boundaries”.

Mashonisas are defined as neighbourhood money lenders who are not registered with the National Credit Regulator (NCR) as required by legislation. These lenders appear to charge between 30 and 50 percent interest on loans between R50 and R5000 (with the majority between R500 and R1000).

The research was conducted in Khayelitsha last year. The report showed that there are approximately 40 000 informal lenders in South Africa, at a ratio of 1:100 households in informal settlements.

The report comes on the back of a sharp incline in the percentage of credit users in South Africa – from 57% of the adult population being active credit users in 2008 to 69% in 2017.

The NCR’s Rishana Singh confirms that credit consumers increased from over 17.5 million in December 2008 to more than 25.3 million in December 2017 according to the Credit Bureau Monitor report. This is due to factors such as population growth, economic pressures, credit accessibility and consumer awareness, Singh says.

Brett van Aswegen, CEO of Wonga SA, explains: “With the change in credit regulations in 2015, we have witnessed a tightening in credit extension across the local market, despite the growth in credit-active customers. We asked ourselves the questions: where does a customer go when they can’t access the formal credit market, and what does that mean to those operating in the highly regulated, formal credit market? This led us to investigate the informal lending market in South Africa. We wanted to know how this market works and why customers use this market.”

Mashonisas are illegal and unregulated, which means their operating models are not impacted on by regulations and they incur no compliance costs in terms of the National Credit Act, Van Aswegen says.

“They are widely understood to be ruthless operators playing hard in a brutal market and are reputed to employ sometimes excessively robust collection methods and, by definition, their customers do not enjoy legal protection.

“However, while this research confirmed the high cost of credit and tough collection practices, the report found that many are ‘not the monsters that media make them out to be’ and that people who use mashonisas often use them because they find them easier and more convenient to use than the formal credit market,” he says.

Singh explains that credit providers are required to do affordability assessments.

“Only those who can afford to repay should be granted credit.”

Registered credit providers have to pay an annual renewal fee to remain registered as a credit provider. If they do not pay their annual renewal fee, their registration will lapse and all credit agreements entered into after lapsing will be unlawful, Singh adds.

While some people use them as a substitute for formal credit, many people access formal and informal credit for different reasons, and often at the same time, the report revealed.

“The report also illustrated a known but often ignored fact about mashonisas – that they are a socially embedded phenomenon that is widely accepted as part of the social fabric. Anecdotal evidence from both mashonisas and borrowers suggest the practice has grown significantly in recent years and is not likely to disappear. The phenomenon is by definition regulation proof and is almost certainly ineradicable.

“It is clear that informal lending is embedded in the social fabric of communities in which they operate. It would be naive to think that they can be regulated like the formal market.

“The sheer scale of mashonisas would make this virtually impossible and I don’t believe customers would want mashonisas threatened as they depend on them on a monthly basis to get by,” he said.

All credit agreements entered into whilst being unregistered are unlawful credit agreements and the credit provider will not be able to enforce such an agreement, Singh says.

“The NCR is currently embarking on a campaign to get all unregistered credit providers registered, through the mobile registration office that moves around the country to assist unregistered credit providers to register. In addition the unregistered credit providers are continuously referred to the tribunal so that fines can be imposed on them for operating a business of a credit provider without a licence.”

Informal cash lenders are as plentiful as one for every 100 households, a recent study has found.

In the Informal Lending Report, commissioned by short-term lender Wonga, it was found that informal lenders, also referred to as mashonisas or loan sharks, appear to “be more widespread than anticipated, are deeply socially rooted, and often operate without any legislative boundaries”.

Mashonisas are defined as neighbourhood money lenders who are not registered with the National Credit Regulator (NCR) as required by legislation. These lenders appear to charge between 30 and 50 percent interest on loans between R50 and R5000 (with the majority between R500 and R1000).

The research was conducted in Khayelitsha last year. The report showed that there are approximately 40 000 informal lenders in South Africa, at a ratio of 1:100 households in informal settlements.

The report comes on the back of a sharp incline in the percentage of credit users in South Africa – from 57% of the adult population being active credit users in 2008 to 69% in 2017.

The NCR’s Rishana Singh confirms that credit consumers increased from over 17.5 million in December 2008 to more than 25.3 million in December 2017 according to the Credit Bureau Monitor report. This is due to factors such as population growth, economic pressures, credit accessibility and consumer awareness, Singh says.

Brett van Aswegen, CEO of Wonga SA, explains: “With the change in credit regulations in 2015, we have witnessed a tightening in credit extension across the local market, despite the growth in credit-active customers. We asked ourselves the questions: where does a customer go when they can’t access the formal credit market, and what does that mean to those operating in the highly regulated, formal credit market? This led us to investigate the informal lending market in South Africa. We wanted to know how this market works and why customers use this market.”

Mashonisas are illegal and unregulated, which means their operating models are not impacted on by regulations and they incur no compliance costs in terms of the National Credit Act, Van Aswegen says.

“They are widely understood to be ruthless operators playing hard in a brutal market and are reputed to employ sometimes excessively robust collection methods and, by definition, their customers do not enjoy legal protection.

“However, while this research confirmed the high cost of credit and tough collection practices, the report found that many are ‘not the monsters that media make them out to be’ and that people who use mashonisas often use them because they find them easier and more convenient to use than the formal credit market,” he says.

Singh explains that credit providers are required to do affordability assessments.

“Only those who can afford to repay should be granted credit.”

Registered credit providers have to pay an annual renewal fee to remain registered as a credit provider. If they do not pay their annual renewal fee, their registration will lapse and all credit agreements entered into after lapsing will be unlawful, Singh adds.

While some people use them as a substitute for formal credit, many people access formal and informal credit for different reasons, and often at the same time, the report revealed.

“The report also illustrated a known but often ignored fact about mashonisas – that they are a socially embedded phenomenon that is widely accepted as part of the social fabric. Anecdotal evidence from both mashonisas and borrowers suggest the practice has grown significantly in recent years and is not likely to disappear. The phenomenon is by definition regulation proof and is almost certainly ineradicable.

“It is clear that informal lending is embedded in the social fabric of communities in which they operate. It would be naive to think that they can be regulated like the formal market. The sheer scale of mashonisas would make this virtually impossible and I don’t believe customers would want mashonisas threatened as they depend on them on a monthly basis to get by,” he said.

All credit agreements entered into whilst being unregistered are unlawful credit agreements and the credit provider will not be able to enforce such an agreement, Singh says.

“The NCR is currently embarking on a campaign to get all unregistered credit providers registered, through the mobile registration office that moves around the country to assist unregistered credit providers to register. In addition the unregistered credit providers are continuously referred to the tribunal so that fines can be imposed on them for operating a business of a credit provider without a licence.”

Informal cash lenders are as plentiful as one for every 100 households, a recent study has found.

In the Informal Lending Report, commissioned by short-term lender Wonga, it was found that informal lenders, also referred to as mashonisas or loan sharks, appear to “be more widespread than anticipated, are deeply socially rooted, and often operate without any legislative boundaries”.

Mashonisas are defined as neighbourhood money lenders who are not registered with the National Credit Regulator (NCR) as required by legislation. These lenders appear to charge between 30 and 50 percent interest on loans between R50 and R5000 (with the majority between R500 and R1000).

The research was conducted in Khayelitsha last year. The report showed that there are approximately 40 000 informal lenders in South Africa, at a ratio of 1:100 households in informal settlements.

The report comes on the back of a sharp incline in the percentage of credit users in South Africa – from 57% of the adult population being active credit users in 2008 to 69% in 2017.

The NCR’s Rishana Singh confirms that credit consumers increased from over 17.5 million in December 2008 to more than 25.3 million in December 2017 according to the Credit Bureau Monitor report. This is due to factors such as population growth, economic pressures, credit accessibility and consumer awareness, Singh says.

Brett van Aswegen, CEO of Wonga SA, explains: “With the change in credit regulations in 2015, we have witnessed a tightening in credit extension across the local market, despite the growth in credit-active customers. We asked ourselves the questions: where does a customer go when they can’t access the formal credit market, and what does that mean to those operating in the highly regulated, formal credit market? This led us to investigate the informal lending market in South Africa. We wanted to know how this market works and why customers use this market.”

Mashonisas are illegal and unregulated, which means their operating models are not impacted on by regulations and they incur no compliance costs in terms of the National Credit Act, Van Aswegen says.

“They are widely understood to be ruthless operators playing hard in a brutal market and are reputed to employ sometimes excessively robust collection methods and, by definition, their customers do not enjoy legal protection.

“However, while this research confirmed the high cost of credit and tough collection practices, the report found that many are ‘not the monsters that media make them out to be’ and that people who use mashonisas often use them because they find them easier and more convenient to use than the formal credit market,” he says.

Singh explains that credit providers are required to do affordability assessments.

“Only those who can afford to repay should be granted credit.”

Registered credit providers have to pay an annual renewal fee to remain registered as a credit provider. If they do not pay their annual renewal fee, their registration will lapse and all credit agreements entered into after lapsing will be unlawful, Singh adds.

While some people use them as a substitute for formal credit, many people access formal and informal credit for different reasons, and often at the same time, the report revealed.

“The report also illustrated a known but often ignored fact about mashonisas – that they are a socially embedded phenomenon that is widely accepted as part of the social fabric. Anecdotal evidence from both mashonisas and borrowers suggest the practice has grown significantly in recent years and is not likely to disappear. The phenomenon is by definition regulation proof and is almost certainly ineradicable.

“It is clear that informal lending is embedded in the social fabric of communities in which they operate. It would be naive to think that they can be regulated like the formal market.

“The sheer scale of mashonisas would make this virtually impossible and I don’t believe customers would want mashonisas threatened as they depend on them on a monthly basis to get by,” he said.

All credit agreements entered into whilst being unregistered are unlawful credit agreements and the credit provider will not be able to enforce such an agreement, Singh says.

“The NCR is currently embarking on a campaign to get all unregistered credit providers registered, through the mobile registration office that moves around the country to assist unregistered credit providers to register. In addition the unregistered credit providers are continuously referred to the tribunal so that fines can be imposed on them for operating a business of a credit provider without a licence.”