South Africa has done well when it comes to overall financial inclusion, especially in facilitating access for the previously unbanked, but there is still a long way to go, writes MUZI MAZIYA.
It is now more than ten years since activists in a South African Communist Party (SACP) led ‘Campaign to make the financial sector serve the people’ successfully pressurised social partners (community, labour, business and government) to host a National Economic Development and Labour Council (NEDLAC) Financial Sector Summit in 2002.
Therein seeds were planted for various transformation initiatives in the financial sector, including the Financial Sector Charter (FSC), which have by many accounts facilitated significant advances in financial inclusion in the country.
What the activists did not know was that they were a precursor to a growing momentum internationally, that would also reverberate in the country, wherein the benefits of financial inclusion are acknowledged and it is promoted with vigour by institutions as diverse as the United Nations (UN), the International Monetary Fund (IMF), and the World Bank.
This article (and its attendant structure) focuses firstly on unpacking the meaning of financial inclusion, and then we outline its benefits, progress and challenges made in recent years, and finally some discussion points on a perspective on the possible priorities for the country going forward.
According to the Centre for Financial Inclusion (CFI), ‘financial inclusion means providing access to a full suite of quality financial services to everyone who can use them, and making sure that people have the tools they need to manage their financial and economic lives’.
This definition is useful because it reflects how ‘financial inclusion’ is a ‘multi-dimensional’ concept, and accommodates how many view it as essentially about making formal financial services “available, accessible and affordable” to all segments of the population.
In addition, the African Development Bank has a useful recognition of financial inclusion being more than access to ‘credit’ but including ‘enhanced access to savings and risk mitigation products, a well-functioning financial infrastructure that allows individuals and companies to engage more actively in the economy, while protecting users’ rights’.
As a result of our suggested approach, it becomes imperative to insist that financial inclusion is not just about the banks or access to credit no matter their significance in a country’s economic landscape.
Financial inclusion is important for improved lives, the welfare of societies and is now widely recognised as one of the most important engines of economic development. For example, in a recent report, the IMF highlights financial inclusion as an important aspect of financial development that reduces inequality of opportunity and mitigates the adverse effects of inequality on the level and durability of growth.
The impact of financial inclusion is pronounced as part of ‘inclusive’ growth that reduces inequality and thus amplifies the availability of opportunities. On the other hand, financial inclusion also has a direct impact as an element of a pro-poor development strategy. For example, some have argued correctly that ‘access to formal financial institutions allows poor households to expand consumption, absorb disruptive shocks, manage risks and invest in durable goods, health and education’.
SA performs relatively well in readily available cross-country comparisons of ‘financial inclusion’. This confirms that transformation initiatives and the global momentum have facilitated significant advances in financial inclusion in the country.
In the most recent Brookings Financial and Digital Inclusion Project (FDIP), Kenya, South Africa, Brazil, and Uganda held their places in the top five-ranked countries between 2015 and 2016, while Colombia moved up five percentage points (note that the survey is focused on ‘emerging countries’).
In the 2016 Economist Intelligence Units Global Microscope survey, the performance is less spectacular with SA falling behind a number of other African countries and is placed overall on 20 out of 55 countries.
SA has fairly robust banking infrastructure, high levels of formal financial account ownership, and high mobile phone usage.
As of 2014, about 70% of adults age 15 and older in South Africa had an account with a financial institution or mobile money provider and a recent survey by the FinMark Trust found that about 77% of adults age 16 and older had bank products in 2015.
This is a marked improvement from the reported 46% in 2004.
Challenges remain and are significant.
However, the journey begun by the activists in the campaign to make the financial sector serve the poor is certainly not complete.
The financial inclusion challenges in SA, despite its performance on the scores cited earlier, are significant and mirror those of other African countries though at times are significantly worsened by enduring impacts of apartheid colonialism era policies that developed the financial sector to what it is today.
The recent IMF Africa report confirms how access to traditional financial services in sub-Saharan African countries remains low and how the share of the population having an account at, or borrowing from a financial institution is low compared with other regions, with only the region’s middle-income countries coming close to peers’ levels.
The evidence is also that access to financial services is higher by large margins for the more educated, the top 60% earners, and men. Access is particularly low in rural areas because branches are mostly concentrated in urban centres.
A closer look at the trends in financial inclusion in SA calls for one to be more cautious in celebrating the successes that are often pronounced.
For example, one needs to disaggregate the formerly ‘unbanked’ so to understand whether the progress cannot simply be attributed to the move towards bank cards for welfare provisions.
Hawkins (2014) presents disturbing data, though dated, showing how the use of certain financial services remains very low (20% of the adult population save, 25% have short-term insurance and 4% use non-bank remittance facilities).
At the same time, it seems financial inclusion in SA has yet to benefit the poor?
Mohammed (2014) cites evidence that the poorest in South Africa still have far from adequate access to financial institutions
FinMark Trust (2012) says that it takes people in the LSM (living standard measure groups) 1–4 twice as long to access a cash machine or bank branch than the average South African.
They say it takes people in LSM 1–4 47 minutes to get to an ATM and 50 minutes to get to a bank branch.
Finscope also reports that 6.6 million (close to 20%) of those who should have access to financial services have no access at all and 2.7 million have access to only informal finance options.
From Finscope’s data, one gets the impression that non-affluent South Africans’ engagement with finance has been largely to get funeral cover (about 25%) and membership to funeral societies (close to 33%).
Data on the trends in rural areas and for women are somewhat harder to access but one would be surprised if SA did not mirror the pattern of marginalisation and exclusion seen in other parts of the continent.
The Way forward—towards a perspective on an SA agenda
A discussion of the structure of the SA financial sector and its evolution from apartheid colonialism to the present period has not been the focus of this contribution but is important for the advancement of the financial inclusion agenda.
As a result, one can highlight the continued implementation (and achievement of set targets) of the FSC relating to ownership and barriers to entry, loans for low-income housing, agriculture and black SMMEs, Empowerment Financing and BEE transaction financing.
Despite being on the local and global agenda, universal access to financial services is lagging with a reported close to two billion adults around the world still lacking access to an account.
In SA we need to ensure that the new technologies and communications infrastructure afforded to the financial sector do not simply build on past inequalities especially by income, race, age, gender, spatial location and so on. These new developments and innovation must be used to reduce the gaps and inequalities, e.g. advances in digital technology and mobile telephony.
Finally, the provision of access to new and quality products must go hand in hand with consumer education and protection. We need to prevent the problems of borrower over-indebtedness where a bleak outlook for the economy and increasing unemployment is associated with increasing numbers of middle-class and working-class households becoming increasingly indebted. We all know that these can plant seeds for instability and chaos that the country can ill-afford.
Muzi Maziya is a Director of Mazra Solutions, an emerging boutique strategic management and economic consultancy firm that is also involved in facilitating financial literacy skills workshops for rural communities. He is a co-author of the book Fighting Poverty: Labour markets and Inequality in South Africa and contributed to Duma Gqubule’s Making Mistakes and Righting Wrongs: Insights into Black Economic Empowerment”. A seasoned policy analyst with a solid understanding of broader issues on the African and SA economy he has previously worked as an economic Adviser and senior manager in government. He was educated at Wits and University of London.