South Africans Turn to Costly Debt as Loan Sharks Gain Ground

South Africa is witnessing an intensifying shift towards credit reliance as households struggle to keep up with the rising cost of living. This trend is deepening financial vulnerability and placing millions at heightened risk of falling into the hands of unregulated lenders. According to Jack Halfon, the founder and chief executive of Atlas Finance, many consumers are increasingly dependent on loans simply to sustain everyday expenses, while informal lenders continue to thrive on this widespread distress.

Key Takeaways

• Rising credit reliance signals worsening household strain: Increasing numbers of South Africans are turning to loans to cover both routine expenses and unexpected costs, highlighting deepening financial vulnerability.
• Informal lending remains a major risk despite strong regulation: Mashonisas continue to dominate segments of the market where consumers are excluded from formal credit, exposing millions to predatory practices.
• Formal micro-lenders are expanding to counter illegal lenders: Companies such as Atlas Finance are widening their reach and adopting hybrid models to offer safer, regulated alternatives to financially excluded consumers.

Increased Credit Reliance Amid Financial Strain

The National Credit Regulator maintains an extensive registry of credit providers across the country. However, despite the existence of this formal system, a considerable portion of the population remains excluded from regulated borrowing due to strict qualification criteria. This financial exclusion forces individuals who do not meet formal lending requirements to pursue alternative avenues that often expose them to significant harm. Consumers are reminded that the NCR website provides a public tool to verify whether a lender is legitimately registered.

Industry experts highlight that although inflation has eased from previous peaks, typical households remain burdened by escalating living costs. Many South Africans now resort to loans to bridge monthly shortfalls, attempting to cover routine needs that their incomes can no longer support. In addition to this, a substantial number of people seek credit for sudden or unforeseen expenses such as household repairs or urgent vehicle maintenance, which further intensifies their indebtedness.

Sharp Rise in Overindebtedness

Recent findings from FinMark indicate a troubling upward trajectory in consumer debt. Approximately 10 million South Africans are classed as overindebted within the formal credit system, with more than one third of registered borrowers experiencing repayment challenges. When individuals relying exclusively on informal lenders are included, the total number of overindebted adults rises to around 12 million.

The sustained pressure on household finances has encouraged the growth of predatory lending practices. Many unregulated lenders take advantage of financially strained individuals who feel excluded from the formal credit sector. These conditions have particularly impacted lower-income earners, including domestic workers and gardeners, who are among the groups most vulnerable to exploitation.

Food Security Declines as Borrowers Rely on Credit for Essentials

FinMark’s analysis reveals that financial vulnerability among households is increasing. Food security has deteriorated significantly since 2014, with a growing number of adults relying on credit to purchase basic necessities. In 2024, 43 percent of adults used credit to buy food, representing an increase from the previous year. This signals both rising hardship and a deepening reliance on loans for daily survival.

Growing Focus on Consumer Protection and Hybrid Lending Models

Formal lenders are increasingly working to counter the influence of mashonisas by offering safer alternatives and encouraging consumers to transition to regulated credit solutions. Industry players note that South Africa is seeing a rise in digital lending platforms that broaden accessibility, although in-person assistance remains important, particularly for individuals unfamiliar with financial services or dealing with complicated circumstances. South Africa’s rapid digital-lending expansion has positioned it among the continent’s fastest-growing fintech credit markets, according to regional financial reports.

The credit market is gradually shifting towards a hybrid model that combines technology-driven convenience with personal interaction, consumer education and trusted advisory support. This approach aims to strengthen financial literacy and encourage responsible borrowing among first-time or vulnerable clients.

Atlas Finance to Expand National Footprint

Atlas Finance, which currently operates around 280 branches across South Africa, is preparing for further expansion. The company aims to exceed 300 branches before the year concludes, reinforcing its commitment to the domestic market. Despite this growth, the firm is not prioritising regional expansion into neighbouring countries, opting instead to consolidate its presence and influence within South Africa. Atlas Finance’s continued investment in physical branches reflects sustained demand for face-to-face lending services, which remain essential for many first-time or lower-income borrowers.

As the country continues to grapple with economic pressure, the dual challenge facing the micro-credit sector involves helping overburdened consumers navigate a difficult financial climate while simultaneously contending with the ongoing impact of illegal lending networks.

Conclusion

The rising cost of living in South Africa has created a complex financial landscape in which millions of households are increasingly reliant on credit, often turning to informal lenders when excluded from formal channels. While overindebtedness continues to grow and predatory lending remains a serious threat, formal micro-lenders are stepping in to provide regulated, responsible alternatives. The expansion of digital and hybrid lending models, combined with consumer education and stricter oversight, offers a pathway to mitigate financial vulnerability. However, addressing the dual challenge of economic pressure and illegal lending will require sustained regulatory vigilance and ongoing support for financially excluded communities.