Mashonisa loans operate in a gray area of legality in South Africa. While lending itself is not illegal, these informal lenders are usually unregistered and unregulated, which means their operations don’t comply with the National Credit Act (NCA) — the primary legislation governing credit providers in South Africa. According to the NCA, anyone providing credit should be registered with the National Credit Regulator (NCR) and adhere to specific guidelines to protect borrowers.

The NCA, established in 2005, mandates that all credit providers, whether large banks or small lenders, follow set standards, including transparency about interest rates and terms. It also aims to prevent reckless lending, which happens when lenders give loans to individuals who likely can’t repay. To comply, credit providers must perform affordability assessments and ensure fair lending practices. By contrast, mashonisas generally skip these requirements, often lending money without background checks, which puts borrowers at higher risk of debt spirals and exploitative practices.

Because mashonisas are unregistered, they operate outside these consumer protections. This means they’re not legally bound to follow fair interest rates, disclose terms, or refrain from using aggressive tactics for repayment. Unfortunately, many mashonisas charge extremely high interest rates—often far above the NCA’s regulated limit—leaving borrowers trapped in cycles of debt. In some cases, borrowers report harassment or intimidation if they struggle to repay. This lack of regulation not only endangers borrowers but also prevents mashonisas from accessing formal structures that could legitimize their business and provide safer lending options.

Despite these risks, mashonisa loans remain widespread in disadvantaged communities due to accessibility issues and financial need. For people without formal credit histories, mashonisas may feel like the only choice for emergency funds. Recognizing this reality, some experts argue that formalizing and regulating these loans could benefit both borrowers and lenders, allowing mashonisas to operate within a framework that protects consumers and creates safer lending practices. Encouraging these lenders to register could help integrate informal lending into the regulated system while preserving its accessibility.

In summary, while lending money informally isn’t illegal in South Africa, unregistered lenders like mashonisas are not compliant with the law. Borrowers seeking loans from mashonisas should be cautious, as these loans come without legal protections. Whenever possible, it’s advisable to seek loans from registered credit providers or microfinance institutions that are subject to the NCA’s regulations, which offer fairer, more transparent loan terms and uphold borrower rights.