Loan Sharks – why to avoid them!
31 August 2016
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On mobile, on digital, on demand, this is Old Mutual Live, the Money Coach edition. Hello and welcome, my name is Chris Gibbons. With me in the Old Mutual Live studio, John Manyike, Head of Financial Education at Old Mutual. John, welcome, good to have you on board, as always.
John Manyike: Thanks Chris.
CG: Nothing funny about not having enough money, nothing funny at all about not being able to put food on the table and send money back home to family. But it’s even less funny to find yourself in the clutches of the loan sharks. That’s why in this edition of Old Mutual Live Money Coach we’re going to be looking at the dangers of loan sharks. Loan sharks, also known as Mashonisa’s. John, where does that word come from, what’s the root of Mashonisa?
JM: Look, Mashonisa means ‘to sink’ but again, people can also interpret it in a different way. In Zulu it means you’re dead, you’re gone, so you’d imagine that they might have acquired that name. Because of people thinking, because of the threat, the kind of threats that they make, the intimidation, the harassment. All sorts of things that they do in order to collect their money.
CG: Whether we say it in Zulu or English or Italian or any other language, a loan shark is a loan shark and we know how they operate, they’re dangerous.
JM: They are dangerous, correct, because they use threats and illegal practices. Some of the things that are associated with loan sharks.
Why do we go to loan sharks?
CG: Why do we go to a loan shark in the first place?
JM: It’s amazing how, in spite of the fact that we know that loan sharks are dangerous and so on, but people still go to them. I think there are a couple of things that make people go to loan sharks. One, is that people who are turned down by the formal financial institutions. Because maybe they didn’t make the scorecard. Especially now with the National Credit Act, that lenders need to make sure that they lend money responsibly. At times people don’t quality and when they don’t qualify and they have an urgent need. They’re over-indebted and they end up going to loan sharks, especially people who are trapped in debt.
In some instances, it might be people who are unemployed, who need to put bread on the table. But at the same time they realise the only way out is to actually borrow. Maybe they’re hoping that they might make money soon and in some instances I doubt if people know if they’re going to make money. It’s a case of taking a risk and the only way they can get the money is through the Mashonisa’s.
CG: How do I avoid them, how do I avoid going there? If I’m desperate, if I haven’t got money to put food on the table, how do I avoid them?
JM: Sometimes we need to rely on family. I know it’s not always, I mean families are different, but you may need to ask family to help. In some instances there are things that we hold onto because of sentimental value. But if it means selling your lawnmower, whatever it is that you need to sell, some of your belongings in order to, if it’s really that urgent. You need to look at those things because going to a loan shark is certainly not a solution, it’s more dangerous.
Once they’ve got you…
CG: The problem of course, is that once I’m in that grip, once I’ve agreed to their fantastically high rates of interest, I’m sunk, I’m gone.
JM: Yes, you are. Fantastic, I’m not sure, but definitely yes, it’s very dangerous. Because once you get in there and a lot of people who use loan sharks, you find that once they use them, it’s very difficult to come out. The loan sharks take advantage because they know that you’re not going to report them to the police. You know that the way in which you went about getting money from them, you knew in the first place that it’s a dangerous transaction.
CG: How do I escape, once I’m in their clutches, once they’ve got their claws into me? How do I get out?
JM: You see, as much as it would be easy to say, just keep running, but the reality is, you can’t keep running forever. You don’t want to put your life and your children in danger, so you need to find ways to pay them off, knowing that you don’t go back there.
Paying them off might mean exactly what we said earlier, by either selling some of your belongings or asking family for help and so on. But you really need to make some serious sacrifices in order to pay it off because the thing is, the more you delay payment, they hike the interest. There’s no scientific way of calculating their interest. They decide what the interest is going to be.
They are outlaws
CG: Should they be outlawed?
JM: Well, they’re already outlawed, if one looks at the fact that we have a National Credit Act. So they are an unregistered provider and the interest that they charge is certainly way above what the National Credit Regulator would require from lenders.
CG: They are outlawed but we know that for example, they are a part of the fabric of our society. They were absolutely central, one of the key issues in the Massacre at Marikana.
JM: Absolutely, for as long as there’s demand, I don’t see how loan sharks will be phased out completely. I think it’s sad what happened in Marikana, because it’s something that was snowballing over time. Up to a point where we know what we know, the rest is history.
Again, it also highlights the fact that a lot of people tend to feel that they’re underpaid. Not necessarily because the employer doesn’t pay well, but it may as well be that. Because they’re living beyond their means and again, I don’t want to enter into the arena of debating issues around whether this minimal wage or not.
I think that’s why we’ve got labour movements to actually represent their members and they’re doing what they can. But I think one very key thing that needs to happen is to ensure that people are offered financial education so that they can live within their means.
CG: If you’re into the loan sharks or the loan sharks are into you, you’re always going to be underpaid because they will always squeeze you for all you’ve got.
Can employers help?
CG: Talk to me about the role of the employer, can employers help?
JM: Yes, I think we really need to start with ensuring that employees are offered financial education. If a financial institution like Old Mutual who offers financial education to employers across the country is perhaps one way to start. So at least your employees are taught on how to manage money and warned about all the pitfalls of having to settle for loans from loan sharks and so on.
CG: Are there any genuine, legitimate, micro-lenders who would not deserve to be classified as loan sharks?
JM: I wouldn’t necessarily say that, I just think that we need to be very careful about the so-called micro-lenders and so on. Having to rely on credit for your daily living is actually not a healthy way of living, it’s very dangerous.
CG: John, we’re listening to Old Mutual Live, the Money Coach edition, on demand, visit dogreatthings.co.za. John, what are the key things we have to remember when it comes to dealing with loan sharks, the Mashonisa’s.
JM: So don’t go there in the first place, avoid informal lenders. If you really need to borrow money, make sure that you can afford the repayments. If you cannot afford the repayments, it’s not a good way to borrow. As for any lender who borrows to a person who can’t afford. That’s also irresponsible lending or what we call ‘reckless lending’.
You really need to avoid getting into the risk of entertaining these loan sharks and so on because of all these abnormal interest rates that they charge and the threats that one could find themselves in, in dealing with loan sharks.
CG: This has been another edition of Old Mutual Live, the Money Coach edition, my name is Chris Gibbons. With me in the Money Coach studio has been John Manyike, Head of Financial Education at Old Mutual. John, if the listeners want more information, where would they go?
JM: Well, they can like our page on Facebook, which is On the Money Financial Education Programme, or follow us on Twitter at OM_OnTheMoney.
CG: That’s Twitter, get in touch any time, if you have any questions for either John or me, topics you’d like us to cover on Old Mutual Live Money Coach. Please feel free to send them direct to me at firstname.lastname@example.org. We would be delighted to hear from, until the next time, thank you for listening, Old Mutual Live, on mobile, on digital, on demand.