Report uncovers predatory lending practices to most vulnerable

Civil society group Black Sash says social grant beneficiaries were being targeted by unregistered lenders who use grants as security for high-interest loans and charge excessive interest rates per month.

Black Sash said this was revealed in a report done in collaboration with the London School of Economics and Political Science, Stellenbosch University, and the National Financial Ombudsman Scheme SA.

Professor Deborah James, one of the authors from the London School of Economics and Political Science, said the report titled ‘Collaborations to Curb Indebtedness’ aims to work towards tackling and curbing involuntary indebtedness, especially among welfare grant recipients.

“We learned that social grant beneficiaries were being targeted by unregistered lenders who use state social grants as security for high-interest loans. We worked with over 40 advice offices who said the problem was widespread.”

The loans from “formal” lenders were repaid through direct debit orders from the grant recipient’s account, while repayments to “informal” unregistered lenders are withdrawn from the ATM on grant payout days using the borrowers’ bank cards, Sassa cards, and IDs.

James added that in their report, it was revealed that child support grants and social grants were not enough to support the needs of recipients.

“This has led them to try to take out loans just to support their basic needs of food and clothing. Unfortunately, they are not able to get loans from registered providers as grant money is too little, and we find them turning to illegal lenders.”

James said that informal lenders (commonly called loan sharks, mashonisas or skoppers) keep borrowers’ identity documents (IDs), bank, and Sassa cards for extended periods, even in perpetuity.

“This is especially the case for the most vulnerable: recipients of Child Support Grants, Older Persons Grants, and Disability Grants. In extreme cases, informal lenders reduce borrowers to effective captivity, keeping them at a level of basic subsistence by providing them with minimal foodstuffs and paying some debts.”

She said not all of these lenders should be condemned, as many lend money only when asked by grant recipients who have little alternative.

“What should be condemned, and what is illegal, is the excessive interest rates between 50 and 100% per month.”

James said that in one instance, a senior citizen’s cards were confiscated by a mashonisa.

“The mashonisa buys him cigarettes and hands him leftover food.”

In another instance, James said an elderly lady had “inherited” a debt to a mashonisa after her husband passed away.

“As per the norm, her bank card and ID were in the possession of the mashonisa.”

James said that different government departments need to collaborate more, together with the Ombud, charities, and NGOs, to offer educational materials to grant beneficiaries.

“Based on what we found out while doing our training workshops, community advisers and paralegals have started acting as intermediaries, negotiating staggered repayments at lower interest rates to lenders and persuading them to accept such terms, as well as involving other community members such as school teachers and social workers.”

Dr Kelle Howson, a senior research consultant at the Institute for Economic Justice (IEJ), said that they were saddened by the findings.

“There is clearly a need for greater collaboration between government departments, more regulation, and more enforcement to protect the most vulnerable from predatory and reckless lending.”

Howson added that social grant recipients have been demonstrated to be especially vulnerable to predatory practices, and this highlighted a need for stronger protections of their finances.

“It calls for tighter controls and terms when private companies are involved in the grant disbursement process, higher grant values that actually cover basic needs (so recipients do not need to resort to illegal/high-interest lenders), and initiatives to strengthen financial awareness amongst communities.”

The Mercury