SA struggles to meet banking targets
Most South African adults (54%) are satisfied with their lifestyles. However, in line with tough economic times, when asked about the prospects of reaching their goals one day, many find their optimism is increasingly evaporating.
This is one of the findings of the annual FinScope South Africa 2011 survey. Launched in 2003 and backed by major South African financial institutions, the Post Office and the treasury, the survey aims to track and understand how South Africans source their income and manage their finances.
It evaluates the demand for, the use of, access to and perceptions of financial services and issues to identify the drivers of and barriers to the use of financial products and services in South Africa.
Despite a target of 70% “financial inclusion” of the country’s adult population by 2013, the industry seems to be stuck. For the past five years, the proportion of banked South Africans has been between 60% and 63% and, when compared with 2010, remained unchanged in 2011 at 63%.
Informal banking mechanisms such as stokvels and burial societies are used by 27.5% of adults. The use of short-term insurance fell sharply as people cut back on their spending. However, life insurance take-up increased slightly among low-income earners as they apparently sought to protect themselves against the effects of the loss of the household’s main income-earner.
The survey found that, even when South Africans have bank accounts, they are generally used for daily transactions and not much for other purposes such as savings, credit or insurance. For instance, 40% of recipients of social grants withdraw the entire cash amount as soon as the payment is received.
Banks are increasingly focusing on finding mechanisms to draw in the unbanked South Africans, sitting at 27.5%. In 2011 awareness and use of the inter-bank Mzansi entry-level bank account decreased, apparently as individual banks increased the promotion of their own entry-level products.
The use of cellphone banking is also increasing, but how it can be used to increase access to credit for entrepreneurial activities is not yet clear.
According to the survey, factors that correlate with financial inclusion are employment, financial literacy, household capacity (for instance, heads of households are more likely to have bank accounts) and community capacity.
However, the results continue to indicate that banks will have to go beyond their comfort zone of full-time, formally employed clients into serving, for instance, people with irregular income. FinScope figures indicate that only 35% of South African adults (over 16 years old) are formally employed, 8% have informal work, 33% receive money from others and 21% receive government grants.
In their pursuit of the unbanked, South African banks are aiming to increase financial literacy, provide appropriate products and remove existing barriers.
The South African banking industry is sophisticated but probably overregulated, high-cost and modelled on society’s elite. For instance, the Financial Intelligence Centre Act (Fica) requirements meant to combat money laundering have been of doubtful effectiveness and have increased banking costs considerably. The survey found that South Africans are generally concerned about high banking fees.
However, the industry has few dramatic interventions that are likely to change the banking landscape. But so far there is no indication that South Africa banks are likely to venture into the Grameen Bank model, partly because they are inhibited by regulations.
The model, which has been successful in India and Bangladesh, postulates that if the poor are allowed credit they will largely find their own way out of poverty.