Mashonisas are the heart of South Africa’s unregistered credit market. New research reveals that up to 40,000 of these “loan sharks” may be operating in South Africa.

Mashonisa is an Isizulu term rooted in the word Shonisa; to impoverish. Roughly translated, a mashonisa is a neighbourhood loan shark, typically operating on an unregulated basis in South Africa’s informal settlements, townships and beyond. As South Africa’s credit regulations become ever tighter and the cost of living remains high, demand for such informal (not to mention illegal) services appears to be on the rise.

Fresh qualitative data gathered by short term loan provider Wonga has shed fresh light on the country’s many mashonisas, and the everyday South Africans who make use of their services. The lender’s findings don’t just highlight the large number of informal lenders in the country, they also debunk many misconceptions about informal lending in South Africa.

Who are South Africa’s mashonisas?

If you believe the scandalous headlines, it would be easy to think that mashonisas are all highly aggressive, ruthless predators, willing to stop at nothing to make their money back five times over. In fact Wonga’s research paints a very different picture.

While dangerous individuals certainly lurk in this unregulated area, and consumers have no legal protection against their informal creditors, mashonisas are rarely boogeymen. Instead, they can be almost any entrepreneurial individual with a small amount of capital. Among the six mashonisas interviewed as part of the study, age, gender and background varied considerably. The group included a former bus driver, a post office worker, a hotel employee and an Avon saleswoman, all aged between 27-48.

How many mashonisas are there?

This fresh research puts the number of mashonisas operating in South Africa at 40,000. This figure is based on the estimated ratio of 1 mashonisa to every 100 residents of informal settlements in South Africa. While researchers were able to identify around 87 mashonisas in the study area, it was assumed that more informal lenders were likely to be operating locally, but unlikely to be forthcoming due to the illegal nature of the work.

How much do they lend?

South African mashonisas typically offer very small, very short term loans of R50-R5,000 over three to seven days. Interest rates, though universally high, vary in this market, but typically fall between 30-50%. Previous studies, such as The Finmark Trust’s 2015 survey, suggest that informal lending levels are low compared to formal services. They also suggest such informal practices are in decline, however these studies may be unrepresentative due to the post 2015 tightening of the lending market, as well as the “shadowy” nature of informal lending.

Although there is no data cataloguing the size of the mashonia market, most mashonisas interviewed by Wonga claimed that informal lending was a growing sector. Use of informal loans was also widely reported, indicating that use of such services is very pervasive, far higher that prior studies have suggested.

Mashonisas: good or evil?

So are these informal lenders a force for good, helping those without access to credit to source the emergency finance they need? Or are mashonisas money-hungry bad guys, seeking to squeeze cash out of their neighbours through any means necessary? The truth is far more nuanced than either interpretation.

In economically struggling areas, informal lenders do provide a seemingly essential service to those who need to cover essential expenses. However, in an unregulated, illegal section of the industry perhaps we would be naïve to assume that abuse at some levels was not taking take place. While the majority of transactions run smoothly, there is no protection for consumers in this underground corner of the market.