A brand new study has shed light on the world of mashonisas – South Africa’s local loan sharks. Operating illegally, these informal lenders offer loans of R50 to R5,000, charging interest rates of 30-50%.

Believed by many to be aggressive and intimidating, there is much more to the mashonisa than the stereotype would have you believe. Many are accepted members of local communities who find themselves with extra cash they wish to capitalise on. While money collection techniques including humiliation and intimidation are occassionally reported within this informal lending industry, for many South African’s the service appears to be convenient and hazard free, with big benefits over legal lending, including accessibility.

So who exactly are the individuals choosing this purportedly risky borrowing route? Why are they choosing to borrow from an unregulated mashionisa instead of a legal lender? And what are they using informal loans to fund? Wonga’s 2018 study in a South African informal settlement uncovers fresh insights into this secretive world…

Who borrows from mashonisas?

The consumers who typically borrow from a mashonisa are almost certainly those who struggle to source finance through official channels. Generally found in low income communities, mashonisas make it possible for those without bank accounts, without formal employment and without credit histories to access finance when they need it. The swiftness of the process is another benefit for some.

Many informal borrowers have limited access to transportation, making accessing legal lenders difficult. Following South Africa’s 2015 crack down on lending regulations, it’s probable that these individuals are now less likely to have a short term loan approved, especially given the high level of indebtedness of many South Africans. Such debts bar many from the formal lending industry.

What are mashonisa loans used for?

The intended purpose of mashonisa loans appears to vary considerably from borrower to borrower. For the majority of those interviewed by Wonga, however, informal loans were taken on to cover essential expenses including food, petrol, school fees, emergency expenses and the cost of everyday life. With the cost of living in South Africa on the rise (petrol prices reached a record high in June 2018), the demand for mashonisas’ services appears to be growing in tandem.

How are borrowers affected?

Although this new research seems to reveal that mashonisas are not the untoward individuals some newspapers may portray, these informal lenders are also unlikely to be charitable saints. Some individuals who claimed to borrow from mashonisas reported routine humiliation at the hands of these informal lenders (being made to sit outside waiting for long periods and being forced to show excessive deference towards the mashonisa). Consumers also face considerable social shame, particularly given mashonisas’ prominent place within local communities. Such borrowing is considered shameful by many, although informal lending itself is much less stigmatised.

With an estimated 40,000+ mashonisas now operating across South Africa, borrowing from an informal lender is common practice for many. When asking who South Africa’s loan shark customers are, the answer may well be: “more people than you think”.