The latest report by finance researcher FinScope shows that an astonishing 73% of adults in South Africa are ‘financially included’, i.e. use some form of financial service or other. This, writes Tom Nevin, shows that the scope of extending financial services is vast.
In spite of heightened levels of negative perception and resistance around South African banks’ high fees and charges, overall levels of formal financial usage in South Africa are stable compared to 2010, despite an increase in the percentage of those older than 16 years who do not use formal financial products.
The results of the 2011 FinScope South Africa, an annual study that measures the use of financial services, reveal that the overall levels of financial inclusion in South Africa have remained unchanged compared to 2010 despite the severe tightening of economic pressures, job losses, basic commodity price increases and other financial constriction.
The level of participation in the formal sector remained unchanged at 68% of the adult population, and includes people who use the services of banks, insurers, microfinance providers or registered money lenders. An analysis of overall formal use of a financial product of some kind shows the proportion of South Africans who use banks remained stable at about 63% – far greater than the 46% recorded in 2004.
This year’s report also reveals that, of those who do use banks, the purchase of prepaid cellphone airtime and cash withdrawals are the most frequently conducted transactions. The probe notes that South Africans interact with their cellphones regularly, providing a major opportunity for increased financial transaction via cellphone banking.
However, the survey also finds that South Africans, under pressure in a tightened economic environment, are cutting back on such investments in burial societies and funeral products.
In addition, more savers kept money in a safe place at home this year than last, borrowing more from family and friends in preference to any other source.
Financially excluded groups
In an anomaly brought about by economic reversal, the use of informal financial products increased by the people described as ‘financially excluded’, a term for people using no financial products or services, formal or informal. The FinScope research shows that 27% of adults, or about 9.1m, found themselves outside the financial net, up from 23.4%, some 7.8m, last year. “The financially excluded are faced with the reality of having to rely on low levels of income,” it concludes, adding that in the survey period, 65% received money from others, 15% depended on government grants and 23% earned less than $130 a month.
A comparison of findings locally, with other countries in the region, showed South Africa has among the lowest proportion of financially excluded people. Only Lesotho has less – 19% – due to its informal provision which, at 23%, is much higher than South Africa’s 5%. Mozambique has the largest proportion of financially excluded people at 78%.
Attitudes and perceptions towards financial institutions may be a barrier to financial inclusion. The research showed South Africans are concerned about bank charges and fees, while financial illiteracy is also a problem. However, South Africans consider bank accounts as aspirational and recognise their value. While having an income is a factor in the use of financial products and services, FinScope says the “greatest predictor of financial inclusion is financial education”.
As a backdrop to the research of financial use, FinScope surveys lifestyles and living condition. This shows one third of South Africans live in rural areas; 43% are under the age of 30; 54% depend on others for their income; and 44% earn less than $250 a month. Some 73% of adults are financially included (they have or use financial products/services from either the formal or informal sectors) whereas 68% use formal financial products (products from either a bank or another formal non-bank financial institution such as a microfinance company, registered moneylender or insurance company).
Financial education is a key predictor of financial inclusion, giving well-informed individuals a higher chance of inclusion. “This creates an opportunity for financial institutions to broaden their focus to all individuals who earn an income”, says the research.
Income-generation activities among the South African adult population include earnings from others (33%), wages or salaries from a company (35%) and government grants (21%). The rest are paid through informal employment, piece or casual jobs, their own small businesses and pensions. More than half of South African adults are satisfied with their current lifestyles – an improvement since 2010. They generally feel that they belong in this country and are protective of their language and heritage. However, more South Africans are concerned about their ability to reach their goals one day “indicating a more pessimistic outlook for the future” in line with their financial outlook, notes the report. Half of the adult population of around 17.2m recognise that their financial situation is not ideal while another 47% find dealing with finances stressful. More individuals say they have not secured their financial future and do not save regularly.
Anomaly of Mzansi
The FinScope survey indicates that awareness and usage of the Mzansi financial product, a banking product designed specifically for low-income bank customers, has decreased from last year. “This raises an important question that needs to be understood further,” proposes the study. “Are banks substituting Mzansi with in-house entry level banking products or are Mzanzi accounts becoming dormant? This is significant since South Africa’s Financial Sector Charter requires the banking sector to make banking more accessible to South Africans. It is also often the case that the banks will persuade clients not to open this account.”
Finally, the survey identifies three key interventions that could be used to increase sustainable financial inclusion in South Africa. These include building capacity through financial literacy programmes where it is lacking, providing financial products, services or mechanisms that serve a specific need, and removing barriers, in particular regulatory barriers, to create a conducive and enabling environment for financial inclusion, says the report.