In one of the world's most unequal societies, thousands find themselves in swirling debt traps with no clear route out.
In the wake of the Marikana mine massacre in August 2012, a tragedy in which 34 miners were killed by police, South Africa was desperate to understand what had compelled the mineworkers to go so far as to endanger their own lives for a pay rise. As analysts and journalists dug deeper, one of the things that emerged alongside poor working conditions and low wages was the hidden issue of debt.
In many cases the money actually being taken home was even lower than their salaries. Many miners were embroiled in debt and money was being taken out of their pay packets in advance to pay loan sharks at exorbitant interest rates. Miners were struggling to survive and with as many as eight dependants to support back home, the desperation of their situation was clear to see. Soon after the massacre, National Credit Regulator raided the offices of local lenders in the Marikana township where major irregularities were exposed.
Buried in debt
However, in South Africa, one of the world's most unequal societies, the miners' situation is no rare exception. In fact, according to the National Credit Regulator's 2012/2013 annual credit report, personal debt in the country - spread across an active population of just over 20 million people - currently comes to a staggering R1.44 trillion ($140 billion).
Amidst poorly enforced credit regulation and high levels of financial illiteracy, millions are ensnared in debt traps, and with half the credit active population holding an impaired credit rating, many are forced to look to loan sharks. Aware of their customers' desperate situations and often exploiting their illiteracy, local lenders - known as mashonisas (Zulu for 'one who buries you under') - typically charge interest rates of 30-60%. With no other options, many clients have to agree.
"They're so desperate to put food on the table for their families, they'll do anything," says Deborah Solomon, founder of the Debt Counselling Industry portal (DCI), who has counselled many South Africans in financial dire straits. "People when highly stressed will say yes to things even though they don't understand what they're saying yes to."
Under these arrangements with mashonisas, the money loaned is immediately accessible with no questions asked, and the lender's security is based on his/her relationship with the borrower. The loan shark will usually know the client and partly rely on the fact that failure to pay back loans carries a stigma and impairs a client's access to future loans.
However, when that is not enough, mashonisas have other tricks up their sleeves. Taking a client's bank card and identity card, though illegal, provides another 'guarantee' of repayment, while some lenders go directly to clients' employers and take the unpaid money directly out of the debtors' salary before it is paid.
This latter tactic, known as a 'garnishee' order, is a credit vehicle used widely by both mashonisas and some of the country's most reputable banks. Typically lenders go to court to arrange for debtors' employers to deduct the amount owed, plus interest, directly from the loanee's salary.
There are currently around 3 million garnishee orders out against South African employees, and it is not uncommon for some people to have more than one garnishee order out against them at any one time. These provisions give debtors no say in the repayment process and often leave them without enough of their salary to live on. This is especially the case when wages are low to begin with and workers are also trying to support several dependants.
It was under the weight of these kinds of pressures that the miners in Marikana went on strike last year demanding a pay rise. South African mines often send recruiting agents to the most rural parts of the country - particularly the Eastern Cape Province - to find those willing to work for the lowest wages, and many now agree that accumulated debt was a crucial dimension behind the protesters' decision to protest.
"From the information we have seen after the fact, debt was certainly a contributing factor," says Renea Steyn, Deputy Ombudsman at the Credit Ombudsman's office. "Some of the miners were earning decent salaries but took home very little due to the fact that they entered into loan agreements which were deducted from the salaries."
Furthermore, in many cases, loanees were likely further exploited by lenders because of their financial illiteracy.
"The biggest problem in the country is a lack of financial education at a grass-roots level," argues Solomon. "Even many skilled workers in South Africa are financially illiterate".
Learning the lessons
In the wake of Marikana, the National Credit Regulator swooped on the township next to the Lonmin mine just outside Rustenberg. Within one day, the regulator had found five lenders in breach of the National Credit Act (NCA).
The officials found one in possession of 23 credit cards and another who had been increasing the amount of the loan to be repaid by his borrowers by 99% when applying for garnishee orders. The extremeness of the interest rates faced by miners also came to light, with one platinum miner paying back R20,000 ($1951) on his initial R1,000 ($98) loan. Crucially, the investigation also found that the majority of the lenders were not performing affordability assessments on their borrowers - the main tool used by the NCA to stop dangerous lending.
Since then, some initiatives have been instigated to try to combat the problem. The credit ombudsman is dealing with more and more cases, and Solomon's DCI began work within corporations to educate workers in financial matters.
In October 2012, six of South Africa's biggest banks also signed an agreement under the Banking Association of South Africa (BASA) with the National Treasury to limit the use of garnishee orders. The two biggest lenders of unsecured loans in the country, African Bank and Capitec, were amongst them. This tighter regulation as well as the need to set aside funds to safeguard against 'bad' loans it has taken on could account for the 50% decrease in African Bank's share price over the last year.
However it remains to be seen if these measures will be enough to stop South Africa's destructive debt practices, especially now with companies such as Wonga -- which has been called a 'legal mashonisa' -- establishing themselves in the country.
Solomon, for one, is not encouraged. "Garnishee orders are rough, they are continuing, and I see it increasing. I do not see it being curbed," she says. And until the lessons of Marikana are properly learnt, she adds, the debt crisis will continue threaten stability and peace.
"What happened at Marikana is not an exception. The violence and unrest is rife. Strikes are ongoing across the country and the potential for violence is very real."