According to a report by the Economist, around 25 million out of about 37 million adults South Africans owe money to financial institutions or other corporate lenders.

The report suggests that there are more people who have loans in the country than jobs. This alarming fact could be down to a few different factors. Firstly, education about money. Some South Africans do not have a household budget or have not received the life skill education to allow them to spend and save their money efficiently. This means any money they do receive is often spent in the wrong way. Secondly, economic growth is slow that many South Africans are having trouble covering short-term expenses by the few jobs that are available.

Of course, this is a very simplified view, and there are many other factors associated with this research. Ultimately, it means many people are drawn to applying for loans.

There are two different types of loans. One is the formal, more traditional lenders, like banks. They are regulated and provide the most risk-free type of loan. The other type of lending is from loan sharks, often called mashonisas, which are informal and unregulated. A recent Wonga report found that there are approximately 40,000 of these types of lenders in operation around the country. This figure is only likely to rise as people turn to loan sharks for short sums of money that they are able to gain access to fast.

Could the rising use of loan sharks be a worry? The original Economist report said that “Many of (the loan shark customers) have jobs, but get turned down by legal lenders because of their poor credit scores. This does not bother the mashonisas, who are adept at collecting bad debts. Not all use threats of violence. Some keep identification documents and bank cards as collateral. Others illegally hold electronic payment cards linked to the social security system. This lets them tap borrowers’ government welfare grants each month.”

It could certainly pose a worry that more of these mashonisas are accessible and offering money to ordinary people who are desperate for cash. It is very important that people weigh up their options when they need money – could they borrow from friends or family instead? Could they save more money for a rainy day? Could they choose regulated methods rather than illegal loan sharks? By educating yourself, you can put your financial situation in a more confident position and you won’t have to risk using loan sharks as a last resort.

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