The rise of credit use in South Africa: building and renovating homes

Just over a quarter of South Africans (26%) are taking out credit to meet developmental needs, using the money for building or renovating a home, among other reasons. 

South African short-term lender, Wonga, has released the findings of its latest Credit Utilisation Survey, which surveyed over 12,000 respondents, finding that nearly 90% of respondents are actively using credit.

They were said to be essentially borrowing to better their lives. The respondents were also taking out loans to pay school or university fees and starting or growing a small business. 

The survey showed that these developmental credit needs are often being met through general-purpose loans or informal lenders due to a lack of accessible, clearly defined developmental credit options in the formal market.  

“While we see this as 'good credit', as it allows individuals to create a better future for themselves, people are turning to non-developmental, traditional credit products to fulfil these needs as accessibility and other regulatory hurdles are barriers to accessing funds,” says Tina Manyanya, a spokesperson at Wonga. 

She said that each year, the short-term lender surveys a substantial database in winter and summer.

They said that the reality is clear in that far too many South Africans earn less than R7 500, and the majority are unable to meet basic needs like seeing the month through without needing additional lifelines. 

The survey shows a financially stretched population navigating a widening gap between earnings, access to savings and the increasing cost of living, with significantly more than two-thirds of respondents not having any savings.

According to the World Economic Forum (WEF), access to formal credit is one of the drivers for bridging the economic divide.

Developmental credit, that is, credit that facilitates economic and socio-economic growth, such as housing, education and business funding, allows individuals to build better lives, and this is critical to South Africa’s economic aspirations of growing the economy.

“The problem is, however, that in many cases individuals cannot access formal credit, which leads them to turn to informal lenders, such as Mashonisas,” added Manyanya. “And when they can access credit, either formally or informally, we see a worrying trend of this credit being used simply to survive.”

Last month, Experian’s latest Consumer Default Index (CDI) for the first quarter of this year showed that despite their active economic roles, young South Africans face barriers in accessing the credit market.

Representing nearly 24% of the adult population, the youth segment (consumers around 30 years and younger) accounts for a mere 9% of the total credit market, holding just 3% of outstanding debt.

Vehicle Asset Finance (14%) and Retail Loans (10%) are the most common credit products for youth, reflecting their current financial needs and market accessibility. In contrast, youth only hold 1% of the Home Loans market, underscoring the long-term financial milestones that remain largely out of reach for many.

When given the choice, almost all (94%) respondents indicated that they would prefer to borrow money from a registered credit provider, friends or family, or through their employer. Only 5% of respondents indicated that they prefer using an informal lender (such as a Mashonisa) to meet their credit needs. 

In reality, though, Wonga said 15% of the respondents have utilised informal lenders in the past 12 months, with most of these earning less than R7 500 per month. This was said to be indicative of higher vulnerability and limited access to formal products.

“Our survey shows that despite many South Africans wanting to utilise formal lending channels, many are being driven to use informal lenders,” says Manyanya.

The survey shows that despite 90% of respondents confirming that they use credit, a staggering 65% had been declined for credit, with decline rates disproportionately concentrated among lower-income groups.

More than half of those using informal lending channels earn less than R3 000 per month, while a quarter of those who used informal lending over the past year reported that their repayments are their most expensive monthly outgoing.

“It is concerning that many South Africans, especially those in lower income bands, are excluded from formal credit, due to a mismatch between need and regulation. When formal credit options are inaccessible, people turn to informal sources by necessity, not by choice,” says Manyanya.

“Even more worrying is that our survey also showed that 6% of credit users didn’t know the difference between formal and informal lending,” she continues.

Outranking the need to utilise credit for development needs or even to address unplanned emergencies, Wonga said the findings highlighted a concerning national reality that many South Africans are using loans to simply stay afloat mid-month and month-end. 

Around 27% use credit every month just to cover groceries, transport and electricity.

“What the data shows is that South Africans are not borrowing frivolously,” says Manyanya.

“They are borrowing out of necessity to survive emergencies, educate their children, get to work mid-month, or simply to keep the lights on. This is concerning-using credit for these essential needs is simply using it for survival.” 

Manyanya said that since credit is not just a financial tool, but a survival mechanism and a stepping stone for many.

She said the findings from this survey reveal that there is a huge opportunity to bridge the gap between the formal and informal credit markets, leveraging fair credit practices and more clearly defined regulations, particularly where developmental credit is concerned.

“Formalised credit is critical, and it can be a powerful tool that can drive economic growth when used well. That said, we believe that it requires a regulatory rethink and more accessible, well-communicated credit options,” she said.

“A better understanding of how formalised credit is critical to South Africa’s economic aspirations of a growing and stabilising economy. At Wonga, we are committed to helping structure an industry that supports this to the benefit of citizens,” Manyanya said.

The short-term lender said the survey’s findings point to a deeply felt demand for safe, developmental credit solutions and an urgent need for clearer product visibility and education around developmental credit, a more inclusive regulatory framework and improved access to formal credit for low to middle-income earners.  

“It is the responsibility of lenders and policymakers to make sure credit works for everyone and not just the privileged few – doing our part to help those excluded from the formal credit sector due to the mismatch between need and regulation.

"This will help bolster much-needed economic growth and help an estimated 15 million South Africans who are currently unable to access formal credit,” Manyanya said in conclusion. 

Meanwhile, to qualify for a rental property, prospective tenants need a good credit score, proof of income and affordability, and a clean background check.

According to rental agents from the Seeff Property Group, landlords usually also look for a good payment history and may also want references from previous landlords. 

The property group said that with rental demand often outstripping supply, many properties are not advertised and have waiting lists.

It added that prospective tenants should prepare necessary documents and start searching early, ensuring they are ready to act quickly if a rental opportunity arises, so they do not risk missing out on available properties.

 Independent Media Property