Over the past decade, banks and life insurers have created a range of products for the low-income market.
The poor can avail themselves of low-fee Mzansi bank accounts or carefully structured insurance products offered under the Zimele insurance brand, for example. Research by FinMark Trust shows that more than three million of the 4.33 million Mzansi bank accounts opened since 2004 remain active, increasing the percentage of banked South Africans from 45% to 63%.
But despite the financial sector’s best efforts, millions of South Africans remain un-banked. What are these un-banked to do?
Many citizens who fall outside the formal banking sector make use of alternative savings mechanisms to save. “A good example of a non-banking instrument would be stokvels,” says Prem Govender, chairperson of the Savings Institute of South Africa (Sasi).
“Research shows that people investing in stokvels often use their savings to improve and extend RDP homes, adding to their net worth and ensuring that there is capital growth in their fixed properties.”
A stokvel is South Africa’s version of a club or syndicate serving as a rotating credit union whereby members contribute fixed sums of money to a central fund on a weekly, fortnightly or monthly basis. Each month a different member receives the money accumulated in the fund over that period.
Stokvels remain valid and popular in 21st century South Africa because communities in deep rural areas have difficulty getting to bank branches and the cost of formal banking structures remain prohibitive for individuals in these communities.
Asked whether people were better served in stokvels than by traditional banking products, Govender opined: “Yes and no. Yes because there are no charges eroding their savings and no because it means they remain un-banked, which is not good for the growth and economy of our country.”
And there are other drawbacks to cultural savings schemes. If a contributing member dies or stops contribution after collecting their ‘turn’ the rest of the members suffer.
Members can also be left out of pocket if the person responsible for collection and distribution is dishonest. And of course this method of saving does not allow for growth through interest — participants simply get back what they put in.
There are other popular non-bank savings mechanisms as well. In his recent presentation at the Sasi 10th anniversary celebration, finance minister Pravin Gordhan reminded attendees of the important role played by lower-tier banks such as co-operative banks.
“These banks, which are member-based, encourage savings in a trusted common-bond set-up and provide an affordable, accessible and convenient alternative to those who may otherwise be excluded from the formal financial system,” he said.
Government has acknowledged the important contribution by these banks by enacting the Co-operatives Banks Act in 2007. The industry has grown in leaps and bounds since this recognition. Gordhan said there were already two co-operative banks registered with the legislated agency and approximately 122 co-operative financial institutions countrywide.
“In our interactions we have realised that there are barriers to entry of these types of institutions into the financial sector, and we have engaged with the industry to address this.” It is hoped future collaboration between co-operative and other formal financial institutions will bring greater variety and vibrancy to the country’s financial sector.
There are many challenges to banking South Africa’s un-banked and introducing the poor to formal savings vehicles. Top of the list would be to tackle our woeful unemployment rate as the country’s savings performance would improve dramatically were more individuals to receive consistent and meaningful wages.