Verify your Mashonisa before taking out a loan, urges ENSafrica

Candidate legal practitioner at ENSafrica’s banking and finance department Karabo Seerane writes:

A loan shark or ‘Moshonisa’ is an unregistered credit provider that operates his/her business unlawfully. Mashonisas enter into informal credit agreements with members of the community with the intention of keeping their clients indebted to them.

The National Credit Act (NCA) requires credit providers to register with the National Credit Regulator – failure to register will result in the credit agreement being invalid and unlawful.

The NCA provides that the interest rate charged by a credit provider on an unsecured loan should be based on the current repo rate, amounting to about 30% interest charged a year and should be at an interest rate of no more than 5% per month for short-term loans.

This is the general principle when it comes to providing a loan. Mashonisas do not follow these requirements and this results in the exploitation of the members of the community.

Red flags to observe when taking out a loan:

What is the interest rate charged over the term of the credit agreement and are there any additional costs?

Is the credit agreement written and signed and will you be given a copy of the agreement?

What process is followed when you are unable to pay back the loan or make a late payment?

Are there credit checks or an assessment of your ability to pay back the loan? and

Unlawful possession of your personal items as collateral for the loan; and unlawful collection practices such as   threats of violence, and intimidation.

If you find yourself in a flawed credit agreement with a mashonisa, you can report them to the National Credit Regulator by filling out form 29 available at www.ncr.org.za, or alternatively, by calling 011 554 2700 or send an email to complaints@ncr.org.za and in the event of threats of violence, contact your nearest police station.