NITA MORGAN | SA’s credit gap fuelling a dangerous underground economy

Every time thefuel pricegoes up, it quietly rewrites the monthly budget. It shows up in ways that are easy to miss at first, such as a slightly more expensivetaxi fare, groceries that cost a little more than they did the week before. But over time, those increases compound, and for many SA households, there is very little room left in the budget.

South Africans are already borrowing. The more important question is where they are able to borrow, and under what conditions. While more consumers are formally banked than ever before, a large portion remain excluded from traditional lending products such as credit cards or personal loans.

In recent years, a new generation of digital short-term lenders has emerged to address this gap using technology to offer faster, more accessible and regulated alternatives. However, at the same time, formal lenders are becoming more cautious and risk-averse. Stricter affordability requirements, rising compliance costs and a tougher economic climate have all contributed to a sharp increase in credit application rejections.

[paywall]

For consumers, however, the need for credit does not disappear. It simply shifts. This has real consequences.

More consumers are pushed towards informal lenders, not because they want to be there, but because there are fewer alternatives. These lenders, commonly referred to asmashonisasor loan sharks, operate entirely outside of regulatory oversight. They offer quick access to cash, often with minimal requirements, but at a far higher cost.

Interest rates can reach as high as 30% to 50% per month, and lending practices frequently involve the confiscation of bank cards or identity documents. In some cases, collection methods are aggressive or coercive, trapping borrowers in cycles of dependency. Estimates suggest that tens of thousands of illegal lenders are operating across SA.

That is why it is critical to draw a clear distinction between informal, unregulated lenders and formal credit providers operating within the National Credit Act. Regulated lenders are required to conduct affordability assessments, disclose costs transparently and comply with strict consumer protection standards.

[/paywall]