More than half of all people who borrow from micro-lenders use the money to buy food or to pay accounts.
Only 1,9 percent approach money lenders to borrow money for their own businesses.
These facts, published in the report on micro-lending by Stellenbosch professor Piet du Plessis, should be cause for serious concern about issues ranging from poverty to education to the dangers of falling into a spiral of debt.
Because micro-lending for purposes of consumption generally goes hand-in-hand with lending to people without collateral at high interest rates, some have branded it as irresponsible action by "loan sharks" who are purely out for their own self-enrichment.
This view has been disproved by studies such as those by Du Plessis and the point has been made that small loans for the purposes of consumption provide an essential service to people who are often desperate for money and have nowhere else to turn.
Issues such as the current exemption under the Usury Act which enables microlenders to charge high interest rates; the practice of handing over ATM cards and PIN numbers to microlenders; ethical matters of lending for consumption without educating people on how to get out of debt; and the need for a more regulatory environment are being addressed by the industry and government.
While it is often said that people approach microlenders because they cannot get small personal or business loans from the formal commercial banking sector, this is not always true.
Strict criteria for approving small personal and business loans do apply, but many banks already offer a service of some sorts whereby people can borrow small amounts up to R6 000.
Others are re-evaluating their roles in the small loans industry.
Those already involved on the level of personal loans include Absa through NewBank, Nedbank via People's Bank, Standard Bank via E-Bank and the PSG group.
Group lending is also practised, for instance by UniBank and CashBank. This occurs most often when groups like stokvels want to borrow small amounts of money.
Repayment often occurs within a month or two and interest rates, on average, range between prime plus five or 10 percent.
But formal micro-lenders (with offices and fixed addresses) rate the formal banking sector as only 16,8 percent of their competition, Du Plessis has found.
The micro-lenders say most of their competition comes from other, informal, microlenders, employer loan schemes and pawn shops.
Du Plessis says there is an urgent need for a good relationship between micro-lenders and formal banks.
Micro-lenders are dependent on banks for frequent banking services for their outlets and clients.
Banks again benefit from the number of accounts opened and the income from transaction costs.
"There is huge potential for new banking business on a national level, should the formal banking sector and the microlending industry come to terms on the accessibility of the electronic banking system.
"Those formal banks currently giving the industry a cold shoulder might have a lot of ground to recover, should future developments be in favour of the micro-lending industry."