A surge in microlending and fintech products is transforming South Africa's informal township economy, known as kasinomics. While innovative lenders offer new access to credit, overindebtedness and illegal loan sharks pose significant risks. The informal sector employs 13.4 million people and generates over R5-trillion annually.
South Africa's informal economy, which employs 13.4 million people and turns over more than R5-trillion annually according to Statistics South Africa, is undergoing a financial revolution. Township economies represent nearly a fifth of the workforce and the second-largest source of jobs, with about three million MSME entrepreneurs, 72% operating informally. This landscape splits into survivalists relying on grants for basics and growth-oriented businesses like spaza shops struggling with finance shortages.
A four-pronged lending system has emerged: fintech innovators, regulated banks, fumbling state interventions, and illegal mashonisas charging 30% to 100% monthly interest, using Sassa cards, IDs, and bank cards as collateral. Fintechs like Optasia use AI for real-time microfinancing via partnerships with Vodacom and MTN, offering airtime credit, cash loans, and overdrafts. CEO Salvador Anglada emphasized, “At Optasia, we have a deep commitment to delivering real-time financial access to millions of underserved individuals in the emerging markets.” Their AI calculates credit scores, default probabilities, and tailored credit limits.
Koola Capital provides contract financing from R5,000 for township businesses fulfilling orders. Co-founder Katie Dodge highlighted accessibility: “We want to make sure that we bring a level of reputability that a bank would provide but we build a system that makes it done in the easiest way... in plain English that makes people understand their rights and responsibilities.” They prioritize job complexity over cash flow and operate via WhatsApp with customer support.
Lula (formerly Lulalend) targets SMEs with up to R5-million in funding, testing R10-million limits, and has expanded into banking for better data. Head of product Clinton Thomas explained, “If we start seeing the actual transactions maybe we start getting a better picture of these customers… so one delivers a banking offering that actually helps, but at the same time it provides data to say how do we better fund.”
Despite 98% financial inclusion, 12 million adults are overindebted, with 75% using credit for essentials and 43% for food in 2024, up from 40% in 2023, per FinMark Trust’s FinScope report. Financially healthy individuals dropped from 24% to 16%. Formal lenders reject 65.3% of applicants, per the National Credit Regulator, while the R500-million Spaza Shop Support Fund saw 86% noncompliance. This drives illegal lending amid economic pressures.