Illegal lending on the rise as desperate South Africans turn to mashonisas

Did you know that according to the law, if you owe an unregistered “mashonisa” (loan shark) money, you are not legally obliged to pay it back? According to the National Credit Regulator (NCR), any loan granted by an unregistered credit provider is illegal and unenforceable. Even if they take you to court, they cannot legally enforce the loan agreement or charge interest, as the contract itself is void – although a court may, in some cases, allow recovery of the original amount lent.

But while that may sound like a relief, it’s not a reason to breathe easy, warns Salem Nyati, Momentum Group Foundation’s Consumer Financial Education Specialist.

“For many South Africans, that legal protection is meaningless in reality, as many mashonisas operate outside the law – and so do their collection methods.

“We’ve seen cases where people have had their bank cards, ID books or even SASSA cards confiscated. In extreme cases, intimidation and violence are used to recover money that legally isn’t owed,” she says.

More South Africans are turning to mashonisas

The NCR’s investigations unit recently reported a sharp increase in illegal lending activity across South Africa. These unregistered lenders often offer instant loans without checking whether borrowers can afford to repay, and charge sky-high interest rates that can double or triple the original amount borrowed. 

So what’s driving this surge?

Nyati says it comes down to the state of the economy and tightening access to formal credit. “Many consumers are struggling to keep up with debt repayments, skipping instalments or making short payments. This damages their credit scores, and once that happens, they’re declined by legitimate lenders. Out of desperation, they turn to informal loan sharks, who ask no questions but charge exorbitant interest rates.

According to the NCR, credit applications grew in late 2024 (rising from 18.13 m to 18.53 m in Q4), but the rejection rate stayed high (65.30 %), showing that even though more people are applying, many still fail to qualify, leaving thousands without access to formal borrowing options. 

“In this climate,” says Nyati, “it’s easy to see why some people go straight to mashonisas, especially if they believe their credit record won’t stand up to scrutiny.”

What you can do instead

Nyati shares a few steps to help consumers avoid the mashonisa trap and regain control of their finances.

Cut back: Start by getting close to your monthly spending. Identify your essential costs – such as rent, food, electricity and transport and see where you can adjust.

“You might be able to save by switching to a more affordable grocery store, cutting back on non-essentials for a while, or pooling resources with others – for example, starting a lift club,” says Nyati.

Take a (payment) break: If you’re struggling to meet your existing credit obligations, speak to your credit providers before defaulting. “Many lenders will allow a payment break or ‘holiday’, which gives you temporary breathing room while protecting your credit record,” Nyati explains.

Some insurers even offer a premium skip option, allowing you to miss a payment while maintaining partial cover. “Just make sure to get the arrangement in writing and honour the new agreement as missing a payment without notice can cost you more in the long run,” she adds.

If you have to borrow, do it safely: Only borrow from registered financial services providers bound by the National Credit Act.

“Ask to see their NCR certificate; it must be visible on their premises. Avoid lenders that advertise ‘no credit checks’ or ask for upfront payments. These are red flags. A legitimate lender will always assess affordability and provide a clear breakdown of costs and repayment terms.”

Prevention is better than cure: Lastly, plan ahead to prevent the same situation recurring.

“Take stock of your finances and start putting a little away for emergencies – even R50 a month is a start. Building a small emergency fund can help you avoid relying on expensive credit when life throws you a curveball,” she says.

The bottom line

While the NCR’s recent reminder may sound empowering, Nyati cautions that no law can protect you from the real-world risks of borrowing from mashonisas.

“The best protection is prevention, staying informed, budgeting carefully, and using only registered credit providers. Borrow wisely, and when in doubt, seek financial advice before desperation drives you to dangerous decisions.”