* Banks pushing unsecured personal loans
* Household debt at 75 percent of disposable income
* Nearly half of borrowers are in arrears
By Helen Nyambura-Mwaura
JOHANNESBURG, March 21 For years South Africa's banks never realised they could make money out of millions of low-paid workers, but now they can't stop - just ask Salma.
After losing her husband and then her business, the 39-year-old mother of one is overwhelmed by a mortgage, car finance, six unsecured loans and debt on her four credit cards.
That totals 120,000 rand ($15,800), equal to 10-1/2 months of the salary she earned before her business as a dance instructor all but collapsed.
"If I knew what was coming, I wouldn't have spent so much on my cards, no chance," said Salma, who asked that she be identified only by her first name.
"It is emotionally disabling. I stress so much that I actually get physically ill."
After settling her ex-husband's unpaid rent and finding a lawyer for her jailed drug-abusing brother, she punished her credit cards buying presents for friends.
Salma is one of 6,000 South Africans who apply every month for counselling to help handle their debts, according to the country's credit regulator.
As incomes rise across Africa, consumers in the continent's richest country are choking on debt, thanks to high unemployment, slow economic growth and a culture that prizes high-end brands in everything from cars to shoes. As elsewhere, Mercedes, Audi and BMW are high among the aspirational choices.
South African household debt stands at 75 percent of disposable income, according to the central bank, and experts worry it could get worse as banks push into unsecured loans.
Until recently, unsecured lending - where loans are not backed by collateral and therefore riskier for the bank and more expensive for the borrower - was dominated by smaller South African lenders such as Capitec Bank and African Bank Investments.
After the end of apartheid nearly two decades ago, Capitec and African Bank carved out a profitable niche by focusing on black communities that had been ignored by bigger banks.
Now competitors Standard Bank Absa FirstRand and Nedbank are also looking for a slice of the high-margin business.
"Unsecured lending is quite popular because it is very profitable for the banks," said Nondas Nicolaides, a senior analyst at ratings agency Moody's.
While banks charge margins pegged to the 9 percent prime rate for loans with collateral, unsecured credit can return up to 32 percent. Banks can also charge loan initiation fees, monthly service charges and credit insurance.
Consumer credit has remained weak since a recession in 2009, but unsecured personal loans have grown rapidly. Such loans grew by 53 percent in third quarter of last year from the same period a year earlier. Mortgages, in comparison, were up 4 percent.
The sharp growth in unsecured lending could be worrisome for banks, because they may be lending to some clients who are less than creditworthy, Pieter du Toit, the chief executive of FNB Loans, told Reuters in an interview.
"We are worried that unsecured has grown a bit too much, but it is because people are struggling to find other ways of financing."
His bank, the retail arm of South Africa's second-biggest lender FirstRand, nonetheless plans to advance at least 20 percent more unsecured loans this year.
While South Africa's Reserve Bank has been cautious about high debt levels, Governor Gill Marcus has said unsecured lending is still a small component of overall credit.
Despite its relative wealth, South Africa is saddled with the legacy of its apartheid past: millions of blacks stuck in poverty and an official unemployment rate around 24 percent.
Those with jobs often support their extended families by paying for school fees, medical bills, and even funerals, which tend to be expensive multi-day events for South Africans.
One 43-year-old mother of three said she can no longer afford to service loans totaling 25,000 rand after losing her 2,300 rand a month job stacking shelves for a food company.
"All I want is help to pay this because I am not working anymore now," she said in Diepkloof, a low-income neighbourhood in Soweto, where the National Credit Regulator had pitched camp to educate residents on debtor rights.
Experts say that some of South Africa's poor, traditionally excluded from the financial system, may not understand the dangers of high interest or the details of their loans before taking on debt.
The Soweto mother, for example, was not made aware whether or not her loans were insured against a job loss.
Some debtors hold as many as 13 credit accounts. Even with 10 credit bureaux in South Africa, the highly indebted still manage to get new loans due to lax background checks.
"DEBT IS COLOUR-BLIND"
The debt crisis has inspired a reality show on South African television. On the national broadcaster's "In Debt" programme, "debt doctor" Thoko Nchabaleng, a registered debt counsellor, doles out advice on avoiding excessive borrowing.
In one episode she tells guest William Ramotsela - his extended family's sole breadwinner - to cut back remittances to relatives in his rural homeland of Limpopo.
With two children of his own, Ramotsela also had to support his parents, five sisters and their six children. He had six personal loans, two credit cards and a home loan to service, which left him 15,000 rand ($1,900) short each month.
The problem is also spreading to wealthier South Africans, due to a growing culture of consumption, Nchabaleng said.
"It's about keeping up with the Kunenes," she said, a reference to a well-known ex-convict turned entrepreneur famous for champagne parties and eating sushi off bikini-clad women.
"Debt is colour blind. Whether you are black or Indian, you look at your peers and how they live and you want to live like them," said Nchabaleng in an interview with Reuters at Johannesburg's upscale Sandton City mall, as bag-laden shoppers walked in and out of high-end boutiques.
Higher-income debtors are the hardest to reform, said Nomsa Motshegare, the acting head of the National Credit Regulator, as they don't want to give up their expensive lifestyles.
"We find that a lot of the people who are over-indebted are people with two houses, two cars. They drive the BMWs, the Mercedes. Those are the guys who don't sleep at night, trust me."
"BURIES YOU UNDER"
Those who have tapped out formal credit lines turn to "mashonisas" the illegal loan sharks who first sprung up during the apartheid era, when blacks did not have access to credit.
Their services are still popular, despite their often violent means of collection.
Some mashonisas - which in Zulu translates to "one who buries you under" - confiscate debtors' ATM cards and only give them back after withdrawing their cut at the end of the month.
Lucky borrowers have lost their furniture to mashonisas, while the less fortunate end up as victims of violence.
Not all mashonisas cut the typical image of a loan shark. Nobuhle, a petite 43-year-old woman in a short flowery sundress, is chatty and friendly but admits she can be tough on her customers.
The mother of one lends up to 1,000 rand ($130) and expects settlement with 50 percent interest seven days after the next pay day.
Those late in repaying, usually a month after the money was due, are forced to pay double.
"They don't give up borrowing. They like cash," she said, rubbing her thumb and index fingers together. "So far, business has been very good. I would be lying if I said business is bad."
Nobuhle already has 15 repeat clients and is making double what she earned working in retail.
Would she use violent means against defaulting debtors? She won't say, although she will do "everything" to get her money back.
Nchabaleng, the debt doctor, said mashonisas are not the only ones making a killing.
"We are fighting an ill practice where retail is cashing in, banks and unscrupulous lenders are cashing in," she said.
"Anyone that can take a chance is cashing in on the fact that people are now used to living with plastic money. It's life. But I can tell you that they are dying inside." ($1 = 7.6466 South African rand) (Editing by David Dolan and Giles Elgood)