‘People are taking out payday loans because they are under pressure to manage existing credit.’
With unemployment remaining stubbornly high and the cost of living continuing to squeeze households, many young South Africans are increasingly relying on microloans to make ends meet.
What was once seen as a short-term emergency solution has become a monthly survival tool for thousands of cash-strapped youths struggling to cover essentials such as transport, food, rent and electricity before their next paycheque.
Paul Yon, CEO of VeriCred Credit Bureau, said it is troubling that microloans are increasingly replacing salaries as a means of survival.
Increasing loan uptake
Yon said over the past two years, the number of personal loans opened has increased significantly; however, the average loan size has shrunk, meaning more people are taking small amounts, either willingly or because that is all they qualify for.
This shift in consumer credit suggests a structural move towards high-frequency, low-value borrowing as households scramble to plug month-end cash-flow gaps rather than fund once-off purchases.
“From emergency loan providers offering fast cash in amounts as low as R500-R1000 up to R20 000, to short-term lenders advancing R1 000-R50 000 over just a few months, the market is increasingly geared towards micro-liquidity products,” he added.
Loans used as a rescue plan
Yon said the company’s internal portfolio data showed loan originations up 41%, while average opening balances have fallen by 13% since the first quarter of 2024, pointing to a rescue-loan economy where consumers are taking out more loans, more often, for less money each time, and in the process hard-coding short-term credit into the way they manage everyday life.
“The growth in the personal loan market isn’t being driven by consumers investing in assets, consolidating debt strategically or funding productive expenditure; it is consumers who have run out of other options and need money before month-end,” he said.
“The borrower profile is also changing in ways that reinforce this reality, with the share of personal loan holders aged 18 to 25 more than doubling over the same period, rising from 3%to 7% while the 26to 35 segment has grown from 29% to 33%.”
R10k-per-month earners under pressure
Yon highlighted that a growing proportion of new borrowers are falling into the lower- and middle-income brackets, with segments earning below R10 000 per month maintaining a significant share of originations.
It is increasingly worrying that younger South Africans are entering the credit market earlier using the unsecured, short-term lenders.
He added that the people driving the micro-lending businesses, in many cases, are those least equipped to carry the cost of repeat, high-frequency borrowing.
Damaging impact
Yon said many people do not realise the impact this has on their credit profiles. “Average months in arrears on non-personal loan accounts have increased by around 14% over the past year,” he said.
“People are taking out loans because they are under pressure to manage existing credit, and they are feeling strain across the board.
“The credit mix tells the same story with exposure heavily concentrated in unsecured products, personal loans, revolving credit and store cards, with secured lending representing a very small share of total balances.”
Debt restructuring data
Yon added that the debt restructuring data show that short-term and payday credit accounts for a nontrivial share of restructured debt baskets, indicating that a meaningful portion of this borrowing is not being comfortably serviced and is eventually finding its way into formal distress processes.
“The convenience of fast, small, digital credit has a price, and it’s accumulating on household balance sheets,” he said.
“This doesn’t mean that micro-credit is without value; it plays a role in supporting households navigating genuine short-term income disruption, as it is preferable to informal lenders or simply not eating.”
Problem with microloans
Yon said the problem with microloans is the pattern and what it is saying about the underlying financial condition of a significant number of South Africans.
“When short-term credit becomes a recurring cash flow tool rather than an occasional emergency measure, households are using credit to stay still, not get ahead.
“Credit has always been a tool for households needing a step up or a step out of financial complexity, but a credit market that’s growing by issuing more loans for less money to lower-income borrowers who are already behind on their obligations is not expanding.
“This is a market that’s absorbing a problem that disposable income can no longer contain, and the numbers attached to it are not a cause for optimism.”