Local microlenders and other loan sharks are mushrooming as banks and other financial institutions become wary of granting loans to ordinary South Africans.
Even the middle class are joining the microlending queues as they find it difficult to pay their debts, according to Eddie Stoop, chief executive of the Elite Group, a major player in the micro-finance industry.
He cautions against the flourishing loan sharks who are charging up to 60percent a month interest, accusing them of still using illegal methods to obtain security against money borrowed, even though the National Credit Act strictly forbids such practices.
According to Stoop the past six months has seen record numbers of individuals who previously borrowed from banks turning to the micro-lending industry because they were being turned away by the banks in droves.
One expert has estimated that up to 80percent of smaller loan applications are being turned away by the four big banks.
Stoop says some banks were reporting a 50percent increase in bad debt, with R8,20 of every R10 a South African earns going to pay off debt.
The latest figures from the Bureau of Market Research (BMR) at Unisa shows that more people are unable pay and are sliding down a steep slope into financial despair.
Unisa research shows that the income group with the biggest debt burden are those who earn between R500000 and R750000 a year.
Their debts represent more than 135percent of their disposable income and they use 34percent of their disposable income to pay back debt.
Their woes have seen the property market and car sales collapse with more than 4000 jobs lost as more than 200 car dealerships closed.
His advice is that people must stop spending and use all their available cash to pay off debt and, if necessary, get a second job.
FinMark research corroborates this, showing that almost one in every five South Africans feel trapped by debt.
FinScope 2008, a FinMark comprehensive survey of financial behaviour and use of financial instruments released last week, also shows that one in every four South Africans do not feel in control of their finances.
According to the survey, a significant number of South Africans agree that they "never seem to be able to pay off their debt, it just keeps getting worse than it did in 2007".
More than 28percent of the adult population, or about 9,1million people, claim to be currently borrowing money, contrasting with 13percent in 2007 and 12percent in 2006.
But the level of debt differs significantly by race, with 59percent of whites and 43percent of Indians or Asians being the biggest borrowers.
White and Indian or Asian adults are far more likely to borrow money to service the acquisition of assets, thus often bettering their long-term financial standing.
By contrast, black and coloured adults are more likely to borrow to meet everyday survival needs, the most common reason being to buy food.
Although a significant portion of the population lives beyond its means, the survey shows that this scenario is not fuelled by anything other than basic necessity.
The source of credit is also largely polarised.
Based on their relative financial strength in the market, whites and Asians have the highest incidence of taking out loans through the formal sector such as banks. But loans from informal networks (loan sharks, friends and family) are the most prevalent source of credit for black people.