What is the real cost of a loan?

Agnes Sogoni is a 52-year old domestic worker earning R2 500 per month. She is a single mother of two teenage children and is the sole breadwinner in the household which includes her sister, who is ill with tuberculosis, and her sister’s young son.

She realises the value of education, having herself managed to complete only Grade 9, and is determined that her children should complete their schooling.

In January 2017 she has to buy school uniforms for the new school year, for which she needs R500. She has a cheque account with a bank but she does not qualify for an overdraft facility and her bank is not willing to give her a loan.

She has been warned not to borrow from the mashonisas (moneylenders) in her neighbourhood, who have a reputation for being harsh, charging exorbitant interest rates and illegally taking borrowers’ identity documents or bank cards.

There are a number of micro-lending enterprises in town, and she diligently shops around to find the cheapest available credit, but it is all really expensive.

She hears that there is a law which forces registered micro-lenders to charge no more than 5% per month on smaller loans. She borrows the R500 from Cash Loans Enterprises at 5% interest, and agrees to repay the loan over six months.

She buys the school clothing, and at the end of January she goes to Cash Loans to pay the first instalment.

She is horrified to learn that each of the six monthly instalments will be R173, which means that she will end up paying R1 038 altogether, more than double the amount loaned!

When she queries this, the lady at the front desk tells her that this is because she is being charged a R150 initiation fee and a R50 per month service fee as well as the interest, that the total cost of this credit is 18% per month (216% per year), and that this is all lawful!

This is the typical predicament of vast numbers of underprivileged or over-indebted consumers who struggle to make ends meet.

The Rhodes University Law Clinic strives to improve access to justice through the provision of free legal services to underprivileged people such as Agnes in most areas of law.

In addition to its New Street offices, Law Clinic staff are available to clients at the Assumption Development Centre (Konongendi), Nceme Street, Joza, every Thursday from 9am-12pm.

The Law Clinic also provides monthly workshops on a wide range of topics on Wednesdays at 2.15pm in order to raise awareness of people’s rights (e.g. to shop around for affordable credit, and to be fully aware of the cost of credit). The dates of these workshops in 2017 will be: 15 February, 15 March, 12 April, 17 May, 14 June, 12 July, 16 August, 13 September, 11 October and 8 November 2017.

Grocott’s Mail will carry follow-up material from these workshops on the Friday following each workshop.

Until June these workshops (as well as Radio Grahamstown talk shows on alternate Fridays at 10am) will focus on land and housing issues.

For more detail, please contact the Assumption Development Centre (Konongendi) or the Rhodes Law Clinic: Rhodes University Law Clinic 41 New Street, Grahamstown Telephone 046 603 7656