A white safety logo man running away to avoid a shark in a suit representing a loan shark

South Africa has long battled with high levels of poverty and unemployment, which have contributed to the rise of informal money lending. Often these loans sharks loan money at exorbitant interest rates and use threats or violence to enforce payment. Vulnerable and marginalized communities are especially at risk.

This raises important questions about the legal framework for lending in South Africa. Are loan sharks legal? What are the risks of borrowing from these lenders, and how can people protect themselves? What alternatives are available for those who need access to credit? This article will answer these questions in more detail.

The Legal Framework for Lending in South Africa

What Is the National Credit Act?

The National Credit Act (NCA) is the primary legislation that regulates credit providers in South Africa. It was enacted in 2005 to promote responsible credit granting and discourage reckless lending practices. The NCA applies to all credit agreements, whether they are formal or informal, and governs the entire lending process from advertising and marketing to debt collection.

Under the NCA, lenders are required to register with the National Credit Regulator (NCR) and comply with a set of guidelines to ensure fair and transparent lending practices. These guidelines include conducting proper affordability assessments before granting credit, providing clear and accurate information to borrowers, and not engaging in any coercive or abusive practices.

A brass statue of Lady Justice with her scale with lawbooks behind her

Consumer Protection Laws

In addition to the NCA, South Africa has a range of consumer protection laws that provide additional safeguards for borrowers. These laws include the Consumer Protection Act, which protects consumers against unfair and deceptive marketing practices, and the National Consumer Tribunal, which provides a forum for consumers to resolve disputes with credit providers.

Regulations and Guidelines for Money Lending

The South African Reserve Bank (SARB) has also issued a set of regulations and guidelines for money lending. These regulations are designed to promote responsible lending and protect consumers from predatory lending practices. They require lenders to register with the SARB, provide transparent and accurate information to borrowers, and adhere to strict interest rate caps.

However, despite these legal protections, loan sharks continue to operate in South Africa, often in contravention of the law. This is due in part to a lack of effective enforcement mechanisms. Many borrowers are also unaware of their rights and the legal remedies available to them. As a result, many borrowers still fall victim to predatory lending practices.

» Learn to Avoid Scams: Read How to Protect Yourself and Identify Loan Scams

The Rise of Loan Sharks in South Africa

Economic Factors Contributing to the Growth of Loan Sharks

High levels of poverty and unemployment in South Africa have created a significant demand for personal credit among people who are unable to access formal lending institutions. This demand has created an opportunity for loan sharks to thrive. The South African Reserve Bank has reported that as many as 40% of households in the country have at least one member who has borrowed money from a loan shark.

Targeting of Vulnerable Communities

Loan sharks often target vulnerable and marginalized communities, including those living in informal settlements, rural areas, and townships. These communities are often excluded from the formal financial sector and have limited access to credit. Loan sharks offer quick and easy loans with few questions asked, making them an attractive option for those who need cash quickly.

A pair of handcuffs on a table next to a judge's gavel

Inadequate Government Response

Despite the legal protections in place, the South African government has been criticized for its inadequate response to the problem of loan sharks. Some experts argue that the laws and regulations are not being effectively enforced, while others argue that the government needs to do more to address the root causes of poverty and unemployment.

The rise of loan sharks in South Africa poses a serious threat to the financial well-being and security of many individuals and communities. It is essential that the government and other stakeholders work together to find effective solutions to this problem. Through enforcement of existing laws and regulations or through greater access to safe credit for those who need it most.

The Risks of Borrowing from Loan Sharks

  • Exorbitant interest rates and fees: Loan sharks often charge exorbitant interest rates and fees, sometimes as high as 50% per month. This can lead to a cycle of debt. Borrowers struggle to make repayments and are forced to borrow more money to cover the interest and fees.
  • Threats and violence: Loan sharks may use threats and violence to enforce payment. This can be both physically and psychologically harmful to borrowers and their families. Some loan sharks may also demand collateral in the form of personal property or even access to a borrower’s bank account, creating further insecurity for borrowers.
  • Insecurity of collateral and payment terms: Loan sharks often do not follow the legal requirements for lending. They may not provide written contracts or other documentation outlining the terms of the loan. This creates insecurity for borrowers who may not know how much they owe, when payments are due, or what the consequences of non-payment may be.

» Don’t Be a Victim of High Interest Rates: Learn What Are Good Interest Rates

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Alternatives to Avoid Loan Sharks

Traditional Lending Institutions

One of the main alternatives to loan sharks is to access credit through traditional lending institutions such as banks or microfinance institutions. These institutions may offer lower interest rates and more favorable payment terms than loan sharks. However, accessing credit from these institutions may be difficult for those with poor credit histories or no collateral.

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Community-based Lending Organizations

Community-based lending organizations such as stokvels or savings and credit cooperatives may be a viable alternative to loan sharks. These organizations are often run by members of the community and may offer lower interest rates and more flexible payment terms than traditional lending institutions. However, borrowers may still need to provide collateral or have a good credit history to access credit.

Government-sponsored Loan Programs

The South African government has implemented various loan programs to provide access to credit for small businesses and low-income individuals. These programs may offer more favorable interest rates and payment terms than loan sharks. However, the application process may be lengthy and bureaucratic, and not all borrowers may be eligible.


Loan sharks continue to be a major problem in South Africa, particularly for vulnerable and marginalized communities. The legal framework for lending in South Africa provides some protection for borrowers. These laws however are not always effectively enforced.

Alternatives to loan sharks include traditional lending institutions, community-based lending organizations, and government-sponsored loan programs. It is essential that stakeholders work together to find effective solutions to the problem of loan sharks. For example by providing greater access to safe credit for those who need it most.


Are loan sharks legal in South Africa?

No, loan sharks are not legal in South Africa. The National Credit Act and other consumer protection laws regulate lending and prohibit predatory lending practices.

What are the risks of borrowing from loan sharks?

Borrowing from loan sharks carries significant risks. Some of these are exorbitant interest rates and fees, threats and violence, and insecurity of collateral and payment terms.

What alternatives are available to borrowers who need access to credit?

There are a variety of alternatives to loan sharks. These include traditional lending institutions such as banks and microfinance institutions. But also community-based lending organizations such as stokvels and savings and credit cooperatives, and government-sponsored loan programs.

How can borrowers protect themselves from loan sharks?

Borrowers can protect themselves from loan sharks by being informed about their rights and the legal protections available to them. Avoid informal lenders who operate outside of the law, and seek credit from reputable institutions with transparent and fair lending practices.

How much do you need?
*Representative example: Estimated repayments of a loan of R30,000 over 36 months at a maximum interest rate including fees of 27,5% APR would be R1,232.82 per month.

Loan amount R100 - R250,000. Repayment terms can range from 3 - 72 months. Minimum APR is 5% and maximum APR is 60%.