Rising living costs drive millions into debt as loan sharks thrive, warns Atlas Finance CEO

Tawanda Karombo

South Africans are increasingly turning to credit to survive the rising cost of living, a trend that is deepening indebtedness and leaving millions exposed to loan sharks, says Jack Halfon, founder and CEO of Atlas Finance.

In an interview with Business Report on Thursday, Halfon said formal micro-lenders were calling for stronger policy implementation and tight regulation.

Halfon said South African consumers are “taking loans to cover gaps in their spending as the cost of living rises” despite inflation trending down from the highs of the past few years.

But South Africans are also borrowing for unseen expenditures such as burst geysers or new tyres for their vehicles. However, for many South Africans, the current state of the South African micro-lending industry also means that they have significant exposure to loan sharks.

Data from Finmark shows an estimated 10 million South Africans being over-indebted, with 37% of formal credit borrowers facing repayment issues. When those borrowing solely from informal sources is included, the number of over-indebted South Africans rises to approximately 12 million adults.

“The rising cost of living is placing huge pressure on consumers and increasing the demand for credit. This unfortunately has created ground for predatory lenders preying on desperate consumers,” said Halfon.

The National Credit Regulator (NCR) has a database of registered credit providers in South Africa. However, due to financial exclusion, some borrowers do not qualify for the criteria set by registered micro-lenders.

This was however proving to be an opportunity for Atlas Finance and other formal micro-lenders who are now expanding their offerings to those traditionally financially excluded, including gardeners and other domestic workers.

Halfon views microlending as a financial bridge for those with no access to capital or facing unplanned spending demands.

He said though that the credit landscape in South Africa was sharply divided, with traditional banks serving the formal sector while the informal lending market was also thriving and often preying on those desperate and excluded from the formal market.

“Microlending plays the critical role of a bridge, a regulated, responsible, and compassionate bridge between these two worlds,” he said.

This means that there is a greater need to combat illicit lending on the South African market. Finmark found that despite the high level of access to formal financial services in South Africa, over-indebtedness and financial vulnerability are rising. 

For example, food security has declined since 2014, “with 43% of adults using credit to buy food in 2024, up three percentage points” from 2023.

The formal lending industry in South Africa was now helping to fight 'mashonisas', hoping to actively convert a part of the informal market and protecting consumers from predatory practices.

According to Halfon, while digital lending platforms are rising in SA, the industry is transforming into a hybrid model. Where technology is enhancing accessibility, in-person trust and financial education remain vital, especially for first-time borrowers or those facing complex situations.

Furthermore, the South African market has emerged as a regional leader in regulation of the finance and credit sector with well kept registries. South Africa's regulatory framework, through the NCR and MFSA, is deemed to be “among the most mature and robust” in the region.

“This provides a clear structure that protects both consumers and reputable lenders. The maturity of South Africa’s formal regulations is challenged by the persistent and widespread informal "mashonisa" market,” he said.

For Halfon, the South African micro-credit market has a dual pronged challenge; navigating the tough economic climate straining consumers and competing against illegal lending

Atlas Finance, with about 280 branches in SA, plans to grow from 300+ branches by the end of this year. The company is, however, shying away from foraying into the regional market, opting to focus on its home market.

BUSINESS REPORT