Experts Caution Borrowers as Mashonisa Loans Rise

With rising living costs, stagnant wages, and the pressure of the upcoming festive season, countless South Africans are finding themselves in a financial squeeze. As households brace for year-end spending followed closely by New Year expenses, many individuals are likely to seek quick cash solutions through short-term borrowing. Unfortunately, a significant portion may be tempted to approach unregistered micro-lenders, commonly referred to as mashonisas, because they do not typically perform credit assessments to verify whether a borrower can afford repayments. Authorities such as the National Credit Regulator (NCR) and the South African Police Service (SAPS) have intensified operations to clamp down on illegal lending practices, focusing on those operating outside the law.

Key Takeaways

• Illegal loans are unenforceable: Borrowing from unregistered lenders, or mashonisas, is risky because such loans are unlawful and cannot be legally enforced, leaving borrowers vulnerable to exploitation and intimidation.
• Check before you borrow: Always confirm that a lender is registered with the National Credit Regulator (NCR) and avoid any lender that charges extreme interest rates, demands collateral, or pressures you to sign quickly.
• Financial discipline is your best defence: Building an emergency fund, budgeting wisely, and seeking help from registered debt counsellors can prevent financial distress and reliance on dangerous short-term loans.

The Expanding Threat of Unregistered Micro-Lenders

Experts warn that while borrowing from a mashonisa might seem like a quick financial fix, it often comes with dangerous consequences. According to Siva Dhever, head of credit analytics at Mettus, there are serious risks associated with obtaining funds from unregistered or illegal lenders.

He explains that although short-term loans can appear to offer temporary relief, borrowers frequently face severe repercussions such as excessive service fees, inflated interest rates, and predatory recovery tactics. Research from Mettus has revealed that the number of micro-lenders in South Africa has grown by approximately 2% year-on-year, with around 4,622 operating as of August this year. The same research further indicates a 14.5% rise in the number of South Africans who have taken out microloans in the past twelve months.

Essential Precautions Before Entering a Loan Agreement

Before accepting any loan offer, Dhever encourages borrowers to verify the legitimacy of the lender and to stay alert for signs that may indicate an unsafe lending arrangement. Common red flags include lenders not being registered with the NCR, charging unusually high interest rates, using aggressive sales tactics, or pressuring clients to sign immediately without proper explanation. Borrowers should also be wary of lenders demanding irregular forms of collateral, threatening behaviour, vague documentation, or unsolicited loan offers.

He stresses the importance of only borrowing what one can realistically repay, particularly during high-spending periods such as December. He advises that individuals should engage only with reputable, NCR-registered credit providers, ensuring all loan terms and costs are fully transparent and understandable. Where possible, he recommends budgeting, saving, or exploring affordable credit alternatives before resorting to high-interest options.

Fact: Some South Africans have begun turning to community-based savings groups, known as stokvels, to avoid the risks of high-interest loans. Stokvels not only promote saving discipline but also provide members with interest-free access to emergency funds.

Strengthening the Microfinance Sector Through Responsible Reform

According to Dhever, consumer awareness alone cannot solve the deep-rooted problems within South Africa’s microfinance sector. He believes that stronger oversight, improved financial inclusion, enhanced consumer education, and better social safety nets are necessary to create a fair and responsible lending system.

Transparent data-driven processes, he adds, can play a pivotal role in ensuring fair pricing and responsible risk evaluation. Such measures can help establish trust between borrowers and lenders while encouraging responsible credit behaviour. When borrowers are financially informed and lenders adhere to fair practices, the entire nation benefits from a more secure financial foundation. In such an environment, credit can become a tool for empowerment rather than a trap leading to indebtedness and financial hardship.

Increasing Rejection Rates for Formal Credit Applications

Nyati notes that NCR data shows a steady increase in the number of formal credit applications, rising from 18.13 million to 18.53 million in the final quarter of 2024. Despite this rise, the approval rate remains alarmingly low, with around 65.3% of applications still being rejected. This leaves many South Africans locked out of the formal credit market and forced to seek alternative, often unsafe, borrowing methods.

Given these circumstances, it becomes clear why many people resort to mashonisas. Those with poor or incomplete credit records often believe they have no other choice and assume that traditional lenders will automatically reject them.

According to financial surveys, nearly half of South Africans have no formal credit history at all, which makes it extremely difficult to access legitimate loans from banks. This lack of credit access has fuelled the informal lending boom.

Promoting Financial Discipline as a Preventive Measure

Nyati encourages individuals to prioritise financial discipline before considering any loan. She suggests reviewing all monthly expenses and identifying essential costs such as rent, groceries, electricity, and transport. By cutting unnecessary spending, individuals can create breathing room in their budgets.

She also emphasises that prevention is always better than cure. By tracking finances carefully and setting aside even a small amount, such as R50 a month, individuals can start to build an emergency fund. This small safety net can prevent reliance on high-interest loans when sudden expenses arise.

Tip: A simple 50/30/20 budgeting method can help: allocate 50% of your income to essentials, 30% to wants, and 20% to savings or debt repayment.

Did you know? Studies show that households with even a modest emergency fund of R1,000 are less likely to fall into high-interest debt traps when faced with unexpected expenses.

Financial Awareness as the Most Effective Protection

Although recent efforts by the NCR to educate consumers have been commendable, Nyati warns that laws alone cannot shield individuals from the real dangers of borrowing from unregistered lenders. The best safeguard, she says, lies in proactive decision-making: being informed, creating a solid budget, and borrowing only from authorised credit providers.

Ultimately, making smart financial choices and seeking professional advice when necessary can save individuals from the devastating consequences of illegal lending. In times of financial distress, responsible borrowing and awareness are not just wise, they are essential for long-term stability and security.

Final tip: If you ever feel trapped in a loan you cannot manage, reach out to registered debt counsellors or financial education centres. The NCR’s website lists free services that can help you restructure debt safely and legally.

Trivia: South Africa has over 2,000 registered debt counsellors who specialise in helping consumers escape high-interest debt cycles. Many of their services are free or low-cost for low-income earners.

Conclusion

In a country where financial struggles are part of daily life, the temptation to borrow from a mashonisa can seem like an easy way out, but it often leads to deeper debt and long-term hardship. South Africans are urged to stay vigilant, understand their rights, and explore safer, regulated options when borrowing. Responsible money management, combined with financial education and proper oversight, can help protect consumers from exploitation. Ultimately, informed decisions and a commitment to financial discipline can turn credit from a trap into a tool for stability and growth.