Inside the shadowy world of loan sharks and South Africa's vulnerable
A new report has exposed how illegal money lenders are preying on the country's most vulnerable citizens.
In one case, a widow was kicked out of her own home, which was sold without her knowledge, because her husband died owing money to a 'skopper’.
Titled 'Collaborations to Curb Indebtedness’, the report reveals how social grant recipients, especially the elderly or single mothers, continue to be fodder for loan sharks or mashonisas.
Compiled by Deborah James of the London School of Economics and Political Science, Odwa Nweba (Stellenbosch University Law Clinic), Amanda Rinquest of Black Sash and Kabelo Teme of the National Financial Ombud Scheme South Africa (NFOSA), it exposes how informal lenders lend money at illegal rates between 30 and 100% per month and keep borrowers' South African Social Security Agency (Sassa) cards and even ID cards as collateral or security.
In their report, the authors noted that grant recipients, often in dire need of access to credit, cannot borrow money on a fair basis.
“Since they do not qualify for loans from formal lenders, they often have no alternative other than to borrow from informal lenders or mashonisas who lend money at illegal interest rates and use forms of loan collateral or security such as keeping borrowers’ Sassa or bank cards and ID books for extended periods, even in perpetuity,” the authors stated.
“This is especially the case for recipients of child support grants, older persons grants, and disability grants. In extreme cases, informal lenders reduce borrowers to effective captivity, keeping them at a level of basic subsistence by providing them with minimal foodstuffs and paying some debts. In one instance, we had reports of mashonisas taking out life insurance — naming themselves as beneficiaries — on behalf of borrowers but without informing them.”
In one of the case studies, an elderly man's cards were taken by a loan shark who buys him cigarettes and hands him leftover food.
Around the 15th day after the issuing of grants, the mashonisa halts the cigarette purchase for the remainder of the month, and the man must wait until the following month for his next supply. Mashonisas treat their debtors like children. Grant recipients must beg mashonisas to buy them food.
In another case study, a widow's home was sold shortly after her husband died of Covid-19. The loan shark had all the woman's personal documents. The woman did not receive monies from the sale, and the loan shark has since bought a block of flats to rent out. The woman's family are afraid to approach the loan shark.
The report revealed how the Eastern Cape was a primary location for insurance fraud and severe forms of criminality.
"We heard stories of mashonisas taking out insurance policies on behalf of debtors whose cards and IDs they were keeping, but naming themselves as beneficiaries, even killing grant recipients to collect the payout," the authors stated.
In these cases, researchers found that legislation does not provide recourse where grants are utilised as security for mashonisa loans.
The researchers believe that education is the key to assisting the community.
"Many people do not know about – or are afraid to reach out to – the ombud or regulators. However, despite the absence of formal regulation, paralegals, and advisers in various sites across the country, having a gradually developing sense of what is just and legal, have found ways to mediate between borrowers and lenders," the authors said.
"We found evidence of community paralegals’ ability to give advice on how to move forward and remedy problems. In some notable cases, paralegals have offered useful advice and enabled clients to find a solution to problems of illegal lending. Much of the training related to formal credit and consumer agreements; an area of knowledge they found useful in handling cases," the authors added.
Speaking to IOL, Teme said NFOSA's mandate is to protect consumers and ensure fair treatment in the credit industry.
Teme said contrary to some beliefs, there are laws that protect consumers from dishonest lenders.
She said the National Credit Act (NCA) and other consumer protection laws such as the Consumer Protection Act (CPA) in South Africa, set out clear rules on how credit should be offered, along with the rights and responsibilities of both consumers and credit providers.
"Practices like charging excessive interest, not checking if a customer can afford credit, or taking Sassa cards, bank cards and/or IDs as collateral are illegal.
"Consumers who experience these unfair practices are encouraged to report the issue to us at the NFO, if the credit provider is our member, or to the National Credit Regulator (NCR) if the transgression is by a credit provider or mashonisa that is not a member of the NFO or is unregistered with the NCR, which is in fact, a transgression of the NCA," Teme said.
Already, cross-country police investigations since 2020 have seen several arrests of people - all found with Sassa cards that belonged to other people.
A way forward
The authors said accelerated education and knowledge transfer programs about consumers’ and grant recipients’ rights, using the media to share examples of advisor or paralegal experiences with the most vulnerable, and community outreach through regular roadshows, could also help.
Where to get help
Black Sash National Helpline - 072 663 3739 | 063 610 1865 | help@blacksash.org.za
National Financial Ombud Scheme - 0860-800-900 | WhatsApp: +27 (0) 66 473 0157 | info@nfosa.co.za
Sassa communications officials had not responded to IOL’s request for comment at time of publishing.
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