South Africans are increasingly turning to short-term microloans to pay for essentials such as food, rent and transport, as more employed people find that their wages fall short of covering their full expenses for the month.
VeriCred Credit Bureau says loan originations are up 41%, but average loan sizes are shrinking. This means more citizens, particularly younger, lower-income borrowers, are turning to high-frequency, small-ticket debt just to cover basics like rent and groceries.
The data shows that many consumers are no longer borrowing for large purchases or long-term investments but to make it to the next payday.
This comes as the economic pain for consumers worsened on Thursday when the Reserve Bank’s Monetary Policy Committee announced a hike in the repo rate, to 7%, making debt repayments even more expensive.
VeriCred Credit Bureau CEO Paul Yon said that over the past two years, the number of personal loans had surged, although the average loan size had declined.
He said the trend had intensified as income growth failed to keep pace with rising living costs. Instead of relying on salary increases or additional income, many households were effectively using credit as a substitute for wages.
The profile of borrowers is also changing. Younger consumers, particularly those aged between 18 and 35, are entering the credit market earlier and in greater numbers.
“The payday and short-term loan segment sit at the sharp end of this conversation.
“Debt restructuring data shows that short-term and payday credit accounts for a non-trivial share of restructured debt baskets, which indicates that a meaningful
portion of this borrowing is not being serviced comfortably 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 it was worrying that more households were using credit to make ends meet.
“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. The problem is the pattern and what this is saying about the underlying financial condition of a significant number of South African consumers.
“When short-term credit becomes a recurring cash flow tool rather than an occasional emergency measure, households are using credit to make ends meet, not get ahead,” said Yon.
Announcing the repo rate hike, Reserve Bank Governor Lesetja Kganyago warned of renewed food price pressure despite food inflation having been on the decline.
With rising fuel and fertiliser costs feeding into the food supply chain, there is a risk that food inflation could remain elevated for longer than expected.
He said the process of getting food in a supermarket included factoring in transport. Although there was immediate pressure at the pump stations as the higher oil price translated to increased fuel prices, the indirect effects of that, including on food, were yet to be felt.
Economist Mandla Maleka said the risks to food inflation were firmly on the upside.
He said rising fuel import costs, linked to geopolitical tension, together with sharply higher fertiliser prices sourced from Russia and Ukraine, were putting pressure on South Africa’s food system.
Maleka said the country’s reliance on imported refined fuel had worsened the situation as prices increased after disruptions in key shipping routes.
After an 8.7% drop in March, fuel prices experienced their sharpest increase on record, spiking 11.4% in May.
Maleka said the high fuel cost had made it more expensive to transport food and associated items. The costs were now being passed on to customers.
He said that had significantly reduced consumers’ ability to spend, especially as borrowing costs continued to rise.
“The increases in interest rates, both repurchase and prime lending rates, converged to further squeeze consumer buying power.
“On the horizon looms further hikes in interest rates and further pressure on food prices, which could engender a never-ending self-fulfilling cycle of increases.”
Maleka said the broader economy could also come under strain. Slower growth, weaker tax collection and rising unemployment could become a reality if pressure persisted.
Agbiz CEO Theo Boshoff said farmers were facing intense cost pressures because fertiliser and diesel made up a significant share of production expenses, with transport also accounting for a large portion of food costs.
He said that while those rising input costs were expected to push food prices higher, farmers could not simply increase prices because those were largely set by the market. As such, farmers and the broader food value chain were being squeezed, with limited ability to pass on costs to consumers without reducing demand.
Boshoff said some sectors, such as grain and sugar producers, were more exposed due to higher fertiliser use, while all producers were affected by rising transport costs.
- South Africans are increasingly relying on short-term microloans for essentials like food, rent, and transport as wages fail to cover monthly expenses, with loan originations up 41% but average sizes shrinking.
- Younger, lower-income borrowers aged 18-35 are entering the credit market earlier, using payday and short-term loans frequently to manage daily cash flow, leading to growing household debt and financial distress.
- The Reserve Bank raised the repo rate to 7%, making debt repayments more expensive amid rising living costs and stagnant income growth, worsening the financial strain on consumers.
- Rising fuel and fertiliser costs due to geopolitical tensions and supply chain issues are driving up food prices and inflation, further squeezing consumer buying power and pushing farmers and the food value chain into cost pressures.
- Economic risks include slower growth, weaker tax collection, and rising unemployment, as increasing interest rates and food inflation create a cycle of ongoing financial stress for households and the broader economy.
