A recent study by Wonga has lifted the lid on so-called ‘mashonisas’, unregulated lenders who provide an informal lending service in the townships and informal communities of South Africa. But who are these mashonisas and what type of service do they provide?
What is a mashonisa?
A mashonisa is defined as a neighbourhood money lender who is not registered with the National Credit Regulator and so is not covered by the legislation as set out in the National Credit Act. Until now, very little was known about these informal lenders, but the Wonga study has exposed some of their practices and revealed who these lenders are.
Who are mashonisas?
Interestingly, the research found that there is no one specific type of mashonisa. In fact, they come from all walks of life and often become lenders because they see it as a reputable employment opportunity. They are both men and women who are embedded in the community, and contrary to the image of mashonisas as members of the criminal class, interviews found that they can be of any age, any education level and both formally employed and unemployed.
Many mashonisas do not make a specific career choice to become money lenders. In fact, a number of those interviewed simply react to events around them. With very few barriers to entry, if an individual has spare cash from a redundancy payment or pension, it’s not uncommon for them to set themselves up as a money lender. All they need to do is tell people in the local community that they have money available and that’s really all it takes.
What type of service do mashonisas provide?
Where there is demand for credit, clearly one option open to those in South Africa’s townships and informal communities is to approach a mashonisa. The loans they offer tend to be small and are repaid over a short period of time, typically a month. Loan amounts can vary, from R100 at the low end rising up to R5,000. The interest on the loans ranges from 30-50 percent.
The reason the loans are popular in local communities is the speed with which borrowers can have their hands on the money they need. There’s also a certain simplicity associated with the loans, with interest rates often remaining constant despite irrespective of the loan amount or term. There are also no hidden charges or admin fees.
What are the concerns associated with mashonisas?
Of course, formal credit regulations are in place for a reason. Although speed can be one advantage of using informal lenders, borrowers are also exposed to a number of unscrupulous lending practices. For example, the interest rates are expensive and more than consumers would pay if they were to access loans from formal lenders.
There have also been reports of mashonisas using intimidating and even shaming tactics when collecting the money they are owed. However, given the ease of access and the lack of such convenient alternatives, this is still a risk many borrowers seem willing to take.
Have you borrowed money from a mashonisa? What was your experience? Please share your thoughts in the comments below.