There are many dangers attached to using mashonisas for short-term borrowing. A mashonisa is what might be known more globally as a ‘loan shark’ or illegal money lender. Mashonisas do not adhere to laws around money-lending and are not regulated by any official body.
Why Do People Use Mashonisas?
Before we discuss the pitfalls of using a mashonisa, it’s important to note the reasons why someone may choose to borrow from one in the first place. As mashonisas are normally based locally, you don’t need to travel to use their services. They can normally give you quick access to the funds you require, and your credit rating will not be affected. You won’t usually have a great deal of paperwork to deal with when you use a mashonisa.
The Risks Of Using A Mashonisa
The cons of using a mashonisa can easily outweigh the pros. A mashonisa may keep hold of your personal documents and cards until your debt is paid off and may charge you incredibly high interest rates. They may also seize your personal belongings if you fail to comply with their terms, and they may keep you under surveillance until you have repaid the funds you owe to them. Some may also resort to intimidation or even violence if you are unable to pay them back. There is little evidence to suggest mashonisas’ customers receive more favourable terms even if they do pay on time. Many mashonisas hesitate to offer low interest rates for fear of undercutting other people working in this field.
Who Are Mashonisas?
Research has found that mashonisas can come from all walks of life. Whilst some were undoubtedly highly aggressive, the mashonisa community tends to be very diverse. Any individual with a sufficient amount of capital could become a mashonisa. The people Wonga interviewed included a post office worker, an Avon saleswoman and a hotel worker. This does not mean using the services of a mashonisa is particularly advisable. Nonetheless, the reality of the mashonisa community did seem to differ from the gruesome picture portrayed by the mainstream media, even if customers have no legal protection and the lenders are entirely unregulated. Some mashonisas argue that they provide an essential service for those who can’t obtain short-term loans from elsewhere.
The Benefits Of Formal Money Lending
When you use a formal money lender, you can normally borrow discreetly. Formal money lenders are bound by rules and may offer you much more favourable interest rates. They may also negotiate payment arrangements with you if you’re unable to repay on time. People are much less likely to feel shame or humiliation when they use a formal money lender. However, tighter regulations have made it tougher for people to obtain formal loans they may struggle to repay.
Wonga’s Informal Lending Report
A study carried out by Wonga South Africa found that most of the mashonisas interviewed knew their activities were illegal. However, none were especially concerned that their operations may be closed down or knew of any other mashonisa who had faced legal action. According to the Informal Lending Report published by Wonga, the mashonisas seemed to think there was little likelihood of them being shut down as long as they treated their customers fairly. The study found that many mashonisas focussed on different markets. Some specialized in small loans for blue-collar customers, whilst others targeted white-collar workers with bigger loans. The report described the mashonisa phenomenon as “almost certainly ineradicable” and “regulation-proof”.
A Growing Trend?
The study found that illegal money lending and mashonisas were more common than expected. The research found that there could be a bare minimum of 40,000 mashonisas operating in South Africa. Interest rates can be up to 50% per loan and are often expected to be repaid within just one month. Many of the study’s participants said borrowing from illegal lenders resulted in humiliation and social shame. The report found that these loans weren’t always used to replace formal credit, with some customers using informal and formal credit simultaneously. There was very little evidence to suggest the stricter affordability rules of the formal lending market were the primary cause of mashonisa lending. Although mashonisa lending comes with considerable risks, it seems it won’t be going away at any point soon.