Hlomela Dlamini* has been working for the Makana
Municipality in Grahamstown for some 15 years. He gets paid about R4,800**
gross a month, but only nets little more than half of that. Each month he has
the usual government deductions and there’s money that must be paid to his
trade union, SAMWU. He also has repayments taken off his salary for Old Mutual,
Sanlam and three funeral policies. The deductions off his municipal package
total R2,270.00**, which means that after 15 years of working for government,
his net pay is R2,530.00**.
But some two-and-a-half thousand rand is not
what Dlamini takes home and uses to live off. When the money goes into his bank
account the Mashonisas take their cut, and that cut is the cruellest.
The word Mashonisa means “to sink”, because
these unscrupulous lenders sink the people who borrow money from them so deeply
in debt that for the most part, the borrowers never fully recover. In places
like Grahamstown, people know that once the Mashonisas have access to your bank
account, you belong to them. These lenders are unregistered and illegal and can
charge 100 or 200% a month on a debt. It is estimated that there are about
30,000 illegal credit providers in the country.
This is how that Mashonisas work. If you take
home some R2,500, like Dlamini, after all your salary deductions you’ll
probably be able to get R1,500 in credit from the unregistered loan sharks.
You run out of money towards the end of the
month and there’s an unforeseen emergency, so you take your payslip to these
people who promise quick and easy cash loans. The Mashonisas make you sign
papers granting them access to your bank account to subtract the principal
amount you’re borrowing, plus the exorbitant interest.
You need R1,500, so you are given the money in
cash, then and there, at the time of applying for the loan. At the end of the
month your salary is deposited and the Mashonisas take their principal amount
of R1,500 back plus interest of about R700, which means you’re only left with
R230 in the bank, and you’ve got a whole new month to get through. So what happens
is that you’re back knocking on the Mashonisa's door again, looking for the
next loan. And so the credit trap rolls on from month to month, because
marginalised people mostly don’t have the wherewithal to get out of this cruel
debt trap.
Ayanda Kota of the Unemployed People’s Movement,
who helped Daily Maverick set up the interview with Dlamini and acted as a
translator for the conversation, opened the municipal worker’s “pantry” after
receiving his permission. Inside there was some rice, sugar, tea bags, salt,
Rajah spice, Rama margarine, peanut butter, polony and a five-litre bottle of
cool drink.
“I am not feeling well. I have so much pain. But
I must make sure that my child is all right. The peanut butter, polony and
juice – they are for my son. I want to make sure he is all right when he goes
to school.”
Dlamini’s son recently started school and leaves
the small home they share in the mornings to go and learn. The father and son
live in a one-roomed shack with one bed, a small stove with two plates, an old
sofa and a piece of rope on which clothes hang.
Kota told Daily Maverick that along with many
others in Grahamstown, where unemployment is set at some 70%, this man’s spirit
is broken. “People drown themselves in liquor. Or they just adapt and get used
to suffering. There are those who live in poverty and just accept this as
normal, and that’s dangerous. There’s something very wrong with that.”
As the founder of the Unemployed People’s
Movement, Kota says Dlamini’s story is the everyman-and-woman’s story of
marginalised living Grahamstown, a university town where poverty is rife.
“Because unemployment is so high, people who do work must provide for the
unemployed extended family. The National Credit Act says that furniture shops
and lenders are not allowed to tantalise these people by sending cards advertising
loans and letters. But they do this despite of the National Credit Act.”
Advertisements enticing people struggling to
make ends meet to take out cash loans are commonplace. The promise of easy cash
loans are found in the post, in an SMS on mobile phones, in local newspapers
and street advertising. Loan offices are mushrooming in cities and towns across
the country. And when people can’t get loans going through a legal route, they
go to the Mashonisas.
“Unsecured lending is a major problem in this
country,” Stephen Logan, a credit law expert and authority on the National
Credit Act, told Daily Maverick. “There are people who can’t get credit at even
the highest interest rates, and they go to the Mashonisas, who lend credit
without being registered as credit providers.”
Kota said that unregistered loan sharks had
wreaked havoc with people in his family and the wider Grahamstown community. An
elder member of Kota’s family gets R1,200 a month as an old-age grant from the
government. The man experienced a difficulty and went to a Mashonisa to borrow
money.
“He borrowed the money from that Mashonisa, and
they deduct the repayment and the interest straight back from his account. He
now gets R750 and the Mashonisas, they take R450 for themselves each month,”
Kota added. The man is trapped in a vicious debt cycle with the Mashonisas, so
he borrows R750 each month, and the loan sharks take their interest of R450,
and so it goes on because he hasn’t got the means to get out of their clutches.
“I know
another person in Grahamstown who gets R1,200 a month but now only draws R120
from the bank. She has had to go back again and again to borrow more money, and
now she is trapped in debt. She is trapped in poverty. There is nothing she can
do.” The problem, Kota believes, is that people finance the basic cost of
living, and then need to borrow more and more to survive.
This woman has borrowed to such a degree that
now she doesn’t even get a survival amount and is dependent on others for her
well-being. Over time her ongoing lending from these informal loan sharks has
eroded her grant to literally nothing.
Figures issued by the National Credit Regulator
(NCR) show that the financial health of consumers is deteriorating, while
unsecured lending has grown significantly. Data released in September for the
second quarter of 2012 showed that the value of new unsecured credit granted
during the period increased by 17.55% when compared to the previous quarter.
Looking at the year-on-year picture in the NCR’s data (see table below) the
value of unsecured loans increased by 36.12%.
Credit granted by credit type (Source – NCR):
“The problem that we have is severe. Forty-seven
per cent of all credit-active people are credit impaired, which means that nine
million people are at least three months behind on their payments on one
account, or worse. At the same time there’s this big growth in unsecured
lending. The sustainability of the credit market is in question, because we are
in a very low interest rate cycle, and as interest rates pick up, that level of
indebtedness will become totally unsustainable,” says Logan.
Speaking to Business Day recently, the CEO of
the National Credit Regulator, Nomsa Motshegare, said the rise of consumer
debt, the increase in unsecured lending and the upsurge of what she called
“unscrupulous lenders” could lead to civil unrest.
“Unsecured loans are not a bad product, but the
rate at which it is being extended, especially in an environment where there
are already high levels of consumer indebtedness, is of major concern to us,”
Motshegare said. “The point is that totality of debt is increasing. While
unsecured loans are only 9.1% of the total loans, people have cell phone
accounts, they have to pay their municipal rates and taxes while coping with
rising food and fuel prices,” she said.
Kota said that social unrest had been brewing
for some time, and that the prevalence of protest and civil insurrection is
increasing. “Unrest is building from the bottom up. People are losing
confidence in the government, and everywhere you go, people talk about
Nkandla.” Kota added that government excess and corruption fuelled anger
amongst people who were struggling to make ends meet and losing their
livelihood to loan sharks. “So many people are talking about the looting of
governments. Revolution doesn’t have a blueprint. But you can see that it is
building bottom-up.”
“There are so many instances where people aren’t
getting paid because of garnishee orders. As prices increase people bear the
brunt of this crisis. In the mines, on the shop floor and on the street you see
working people prepared to go on unprotected strikes which shows there is major
discontent in this country that’s coming from the bottom up,” he added.
Logan said that a stagnant economy meant
salaried employees were seeing their spending power eroded. “With the rising
cost of food, energy, and even the cost of water, people are struggling.
Everything has become much more expensive over time, and it has become so
expensive to live in South Africa that people are borrowing to finance their
life or lifestyle,” Logan said.
“We have already seen social instability because
of garnishee orders. This was part of the problem at Marikana, because the
miners had these loans that they were paying back, and were left with so little
to live on. This is a countrywide problem, and something we could see more of.
The growing debt impairment will lead to more debt collection,” the credit
expert said.
“South Africa’s population will be taking home
less and less money, and this will lead to more civil unrest. There is a credit
bubble that is coalescing and this is exactly what we don’t want to see
happening. We don’t want to see greater and greater rates of impairment. We
want to rather see it stabilising and reducing. The government and others are
trying to fix this, but it is really very late in the day.”
As industry experts and media pundits pointed to
the merging of a credit bubble, the Banking Association of South Africa (BASA)
and the Ministry of Finance issued a statement at the beginning of November, in
which both recognised SA was facing a problem.
“Representatives of major retail banks, the
Banking Association of South Africa (BASA), the National Treasury, the South
African Reserve Bank and the Financial Services Board have reached an agreement
to improve responsible lending and prevent households from being caught in a
debt spiral,” the statement, under the names of Pravin Gordhan and BASA CEO Sim
Tshabalala, read. “The accord calls for several measures to be taken, including
a review of loan affordability assessments, appropriate relief measures for
distressed borrowers, reviewing the use of debit orders and limiting the use of
garnishee orders.”
Logan told Daily Maverick that there were three
key contributors to the “credit bubble”, namely reckless borrowing, reckless
lending and the recessionary environment. A fourth contributor, he said, were
the materialist values driving people to secure credit for cars, mobile phones
and other items at very high interest rates.
“We need to get people to stop buying cars using
unsecured personal loans. The banks are giving loans to people for cars, home
improvements or home loans that are at 31% or 26% or 28% ... This rate is
ridiculous and totally unaffordable. The cost of the credit is mad,” Logan
said, adding that people needed to look at the total cost of credit they were
paying.
Logan said the high rate of credit impairment
and unsecured loans was damaging for both the credit market and the consumers
caught up in it. “It is very important that the credit system works well so
that people can get access to credit, and get credit in a legal format where
there are rights and obligations and protections. That people aren’t forced to
go to Mashonisas which is undermining our society, and damaging people’s lives.”
“We have to ensure that credit providers
implement the National Credit Act because we have one of the best acts in the
world. The role of the regulator is really crucial in terms of trying to get
this done, and it has been promising for a while now to do this.”
While the credit industry needs work, another
problem is the financial literacy of consumers. Thandiwe Zulu, the provincial
director Gauteng of the Black Sash, which helps counsel consumers with credit
problems, said education was crucial to forging a sustainable solution to this
country’s credit crisis. “There have been talks of credit amnesties, and this
could remove the problem, but what needs to be tackled is the cause. The cause
could be that people don’t know how to budget or manage their income, and then
they succumb to debt and land in an even bigger problem. We need financial
literacy and education that causes a change in people’s behaviour. We need to
deal with the causes so that people manage their finances in an adequate way so
that they don’t land in difficult situations that make survival impossible,”
Zulu said.
But like most of this country’s problems, the
challenge of the credit crisis is extremely complex. The high unemployment rate
has created households where extended families are dependent on one or two
people’s salaries; inflation and the high cost of living makes survival
difficult; and those already caught in the debt trap seem to be falling through
the floor.
Add the frustrations of incompetent local
municipalities, and a national government that’s over-promising and
under-delivering in spectacular fashion and you don’t need a political
scientist to tell you South Africa’s become a pressure cooker on a very hot
stove. And that all the loan sharks are doing is turning up the heat.
