A peek into the financial lives of some of South Africa’s poorest households reveals more than many people might think. A complex patchwork of financial instruments and devices are used by the country’s less fortunate not just to get by but also to save.
In-depth tracking of household cash flows, or financial diaries, of 67 Soweto households conducted by the Bankable Frontier Associates, a global strategy consultancy, over nine months showed that emerging consumers, most living below the international guideline poverty threshold of $2 a day, used a mix of formal and informal devices to suit their needs.
Although almost all respondents hid money in several places around the house, 76% also had bank accounts, more than 50% belonged to a burial society, 30% had a funeral plan and less than 50% belonged to some kind of stokvel.
Of the three common types of savings identified in emerging markets by the Gateway Financial Innovations for Savings project, savings clubs such as stokvels are extremely popular in the developing world, particularly in Kenya and South Africa.
It is estimated some R44.6-billion per year is stashed away in South Africa’s stokvels — even though the return is low, or often nonexistent, it is favoured as a way to put a little bit of money away each month.
Daryl Collins, director of Bankable Frontier, the organisation managing the project, said that it was how the poor preferred to save: the first financial service they required was not credit but simply a place to keep their money.
Collins said it was common practice, especially for these kinds of households, to save despite most of their expenditure going to food and transport.
“People with low or irregular incomes are saving to make sure they can map those times when there is not enough. Or you find they borrow where they can sustain themselves … We are not talking about putting money into a retirement annuity — usually the savings don’t tend to be longer than a year.”
Bankable Frontier is currently carrying out financial diary exercises in India, Mexico, Kenya and the United States.
“Across cultures and countries — you’d be surprised,” Collins said. “East Africans and South Africans tend to save more than they borrow.”
The inverse was true for many other emerging market consumers, she said. Audrey Mothupi, head of inclusive banking at Standard Bank South Africa, said the findings surprised the bank itself, which commissioned the study.
She said many surveys showed that the majority of respondents said they didn’t save but, when spending time in the households and documenting their financial behaviour in a detailed manner, it was clear there was conscious financial management.
Mothupi said banks had to look at offerings that mimicked existing consumer financial behaviour.
The bank’s low-end offering, known as the Access Account, was aimed at achieving this. First and foremost, monthly fees had to be eliminated.
“Another thing we realised very quickly — the language you use, the way you define the product, is important. You shouldn’t talk about interest; you should talk about ‘cash bonus’.”
The product also had to be a one-stop solution — where consumers could save and transact, and also access credit if they wanted to.
“You’re not looking to make money first. It is about getting money in accounts and out from under mattresses,” Collins said, although she acknowledged the money would help to swell a bank’s deposit base.
“At home, people are doing what we have designed the product to be,” Mothupi said.
For example, a seven-day cooling-off period was designed to mimic the function of a money guard in a community — someone who would keep money on your behalf and not hand it over to you in times of difficulty.
Trust was an issue, Collins said, but the smaller financial institutions were not in fact better at serving the poor, from whom they made their money.
She said large commercial banks had a role to play and could serve communities better, particularly with services to complement existing financial management behaviour.