WeeklySA_AdminSecurity: Legislation does not provide recource where grants are utilised as security for these loans
By Monk Nkomo
Thousands of social grant beneficiaries, who depend on this money to survive, are being ripped off by unscrupulous loan sharks who lend them money at high interest rates and reduce the borrowers to effective captivity keeping their SASSA cards and identity documents for extended periods and even in perpetuity.
This is according to a new report titled “Collaborations to Curb Indebtedness” that was compiled by Deborah James of the London School of Economics and Political Science, Odwa Nweba from the Stellenbosch University Law Clinic, Amanda Rinquest of Black Sash and Kabelo Teme of the National Financial Ombud Scheme South Africa (NFOSA).
Commonly known as Mashonisas, these unregistered and informal lenders targeted elderly and single mothers as well as recipients of child support grants, old persons grants and disability grants. They also use State social grants as security for high-interest loans. And, to add insult to injury, there is no legal regulation for these unscrupulous lenders.
The authors of the report said they wanted to help tackle and curb involuntary indebtedness, especially among welfare grant recipients, by offering training to community leaders, lay advisers and community paralegals and using evaluative workshops to build knowledge collaboratively and discover practical solutions.
Grant recipients, according to the report, were often in dire need of access to credit but could not borrow money on a fair basis.
“Since they do not qualify for loans from formal lenders, they often have no alternative other than to borrow from informal lenders or mashonisas who lend money at illegal interest rates of between 30 and 100% per month and use forms of loan collateral or security such as keeping borrowers’ SASSA or bank cards and ID books for extended periods, even in perpetuity’’.
In extreme cases, informal lenders reduced borrowers to effective captivity, keeping them at a level of basic subsistence by providing them with minimal foodstuffs and paying some debts. In one instance, there were reports of mashonisas taking out life insurance — naming themselves as beneficiaries — on behalf of borrowers but without informing them.
‘’To make matters worse, legislation does not provide recourse where grants are utilised as security for mashonisa loans and they were unable to provide much advice on this illegal sphere of activity in their Debt, Credit and Consumer Rights handbook for paralegals’’, according to the report.
The training sessions conducted by these authors covered a range of topics such as an overview of the National Credit Act; owing money and being in debt; consumer rights; debt relief mechanisms; legal proceedings related to debt (such as three-year prescription of debts, balloon payments and cancellation of credit agreements upon full payment).
They also covered contracting with a creditor; managing money; credit bureaus and debt removal from credit records and the role of stokvels or rotating credit associations in saving and borrowing. They partnered with various community-based organisations across all provinces in South Africa to implement these training sessions.
Based on their findings, the authors of the report have called for accelerated education and knowledge transfer about consumers’ and grant recipients’ rights, using the media to share examples of advisor or paralegal experiences with the most vulnerable. Community outreach through regular roadshows could also help.
They also emphasised the need for increased funding to ensure government departments fulfilled their mandate in rural communities.
“Our training sessions demonstrated a need for financial literacy in rural or under-resourced areas. Financial inclusion means that we also share in the knowledge that we have as far and as wide as we can reach. A lack of visibility of both the National Credit Regulator and NFOSA in these communities has the potential to make consumers more vulnerable to scrupulous credit providers’’.
Many people did not know about or were afraid to reach out to the Ombud or regulators. However, despite the absence of formal regulation, paralegals and advisers in various sites across the country, having a gradually developing sense of what was just and legal, had found ways to mediate between borrowers and lenders.
“We found evidence of community paralegals’ ability to give advice on how to move forward and remedy problems. In some notable cases, paralegals have offered useful advice and enabled clients to find a solution to problems of illegal lending. Much of the training related to formal credit and consumer agreements; an area of knowledge they found useful in handling cases.”
According to the report, one positive outcome of the training sessions had been the dissemination and sharing of knowledge about certain issues pertaining to debt and consumer rights. The knowledge gained at the workshops was spread through one-on-one encounters between paralegals and those they advised. It was also disseminated through workshops held by paralegals back in their regions.
Trainees or participants giving advice to people who were in debt affirmed the usefulness of the practical information offered. They also appreciated learning more about consumer rights and how to deal with unfair demands from creditors or illegal confiscation of furniture and other household goods.
Through education and effective engagements with government bodies, informal lenders would be encouraged to operate within the perimeters of the law. This would also enable certain money lenders to register their businesses and thereby comply with the regulations stipulated in the National Credit Act (NCA).
“There is also a need for flexible and innovative solutions which are accessible and cost-effective to build on existing practices of mediation and enable community paralegals to use their skills from the training, and to encourage informal lenders to operate within the perimeters of the law and or register with the National Credit Act’’ .
