FINANCIAL INCLUSION
Democratising
Financial Services
Financial inclusion is about giving credit where it’s due. It’s a national priority.
I
n South Africa, 23.5% of the population is said to be
financially excluded. That translates to R12 billion tucked
away ‘under mattresses’. Yet, despite this lucrative potential,
a wide range of players in the financial sector continue to
ignore lower-income groups due to existing socioeconomic
biases. The banked population in South Africa is estimated at 63%,
with the Minister of Finance’s set target of 70% by 2013. Financial
inclusion is a catalytic tool and policy proposition of the South
African government to bring about sector transformation in the
financial industry.
Financial literacy and product knowledge are critical platforms
for financial inclusion. According to the Consultative Group to
Assist the Poor (CGAP), financial inclusion needs to be viewed in a
holistic manner, taking into account the fundamentals of eradicating
poverty, building wealth at a national level and mobilising domestic
resources for development. Key to this is considering the needs of
this market and marrying them to sound business practice.
Financial inclusion is about ensuring that all South Africans have
access to financial services that encourage them to manage their
money, save for the future, insure for unforeseen events and, most
importantly, access credit. Credit can be viewed as the most pivotal
of these four pillars as it empowers individuals to transform their
own lives.
Microfinance is driven by the mission to promote financial
inclusion. Until recently, microfinance was widely driven by the nonbanking sector, which meant that the majority of the population was
excluded from the formal credit market. Lower-income groups are
desperate for credit, primarily for housing, health, small businesses
and household consumption. Many banking institutions regard the
lower-income earners as high risk. In most cases, they are unable to
offer sufficient collateral to meet the commercial lender’s criteria, and
this exacerbates the plight of the low-income segment. The language
used to sell the services can be another notable exclusionary factor.
Microfinance is seen within the context put forward by the
United Nations Capital Development Fund (UNCDF). Inclusive
financial sectors are defined by a continuum of financial institutions
that together offer appropriate financial products and services to all
segments of the population.
Microfinance institutions (MFIs) have the potential to partner
with both the private and the public sectors. MFIs are repositories
of knowledge, in that they understand the lower end of the market
and know how to best serve the segment. Many of them offer their
forgotten client base entry points into mainstream banking.
‘Banks can partici