Financial inclusion is a term that is often used loosely but pressure is mounting for government and the private sector to respond with innovative solutions that can deliver.
“When we talk about financial inclusion, we need to make sure that we talk about transformative inclusion that can and should make a difference in people’s lives”, says Olaotse Matshane, head of market conduct and financial inclusion at national treasury.
Financial inclusion refers to bringing those without bank accounts into the formal banking system and giving them access to credit.
Speaking at a Mail & Guardian financial inclusion workshop, Matshane pointed out that there is to more to the phrase than simply introducing lower-income households and individuals into the banking system. She said finance institutions need to ask themselves what giving a bank account to a consumer means and how can this help them to gain access to other banking products.
While Matshane placed emphasis on creating suitable products for the financially excluded, general manager of Old Mutual Foundation Market Thembisa Mapukata explained that financial inclusion should follow a holistic approach by encompassing financial well-being, empowerment of people and driving their financial security.
But how does one do that in a country like South Africa where inequality is high and the gap between the rich and the poor is increasingly widening. Additionally South Africa has been criticised for its slow pace in tackling financial inclusion. Founder of MobiLife – Africa’s first 100% mobile insurance provider – Frank Schutte says South Africa can learn lessons from India’s strides on financial inclusion through mobile banking.
“In India they do three things, they have a system of identification, lower transactional costs, as well as one number for life for one consumer”, Schutte said.
FNB has recently upgraded its online cash service e-wallet to e-wallet extra to attract the unbanked. “E-wallet extra” is a cardless Fica-regulated account which allows consumers to transact funds using their phone without having a formal bank account.
Old Mutual’s Mapukata also said that research shows that having a funeral policy was the second highest financial product needed by consumers, coming in after a transactional account. She estimated that in South Africa the funeral industry records R9-billion in GDP annually and as a result makes it one of the largest industries.
“Why?…because a funeral is a part of us, nearly a third of a the entire population have a funeral policy”, said Mapukata.
Pointing out that on average, funeral costs were between R15 000 and R20 000, she also said it is better to have a funeral policy than not to have one to avoid falling into a debt spiral which often leads to people loaning money from loan sharks.
It has also been said that the unbanked prefer alternative financial services such as loans sharks and stokvels because of the requirements at institutions such as banks. “Regulations are an impediment and we as Treasury and the South African Reserve bank are doing something about it, Matshane told the attendees.
Treasury has been working on various pieces of legislation to tackle financial inclusion and one of these laws includes the Insurance Act which is expected to come into effect in July this year. The act’s objective is aimed at extending insurance options such as life, household and legal insurance at lower costs to low-income households. It will further lower barriers of entry and encourage competition in the insurance sector.
Matshane added that it is important to protect consumers as it is to include them in the financial system.
However, the unbanked and financially excluded are also not waiting on any of the stakeholders to give them the platform to save. When it comes to informal saving platforms, they thrive as there are 800 000 stokvels in South Africa, according to the National Stokvel Association of South Africa (Nasasa).
Mizi Mtshali, chief executive officer at Nasasa says 200 000 of these stokvels are unbanked as many of them distrust in the financial system. Others are unbanked because they simply have no reason to be. For instance a grocery stokvel does not need to interface with banks as they deal with wholesalers.
These stokvels range from grocery, burials and savings groups which according to Nasasa’s chairperson, Andrew Lukhele, “have kept people together for years because the subculture around stokvels revolves around a social atmosphere and entertainment where friends engage long after the transaction has taken place”.
He also said that stokvels have erroneously been seen as a competition to banks. Adding to Lukhele’s point, Nsika Masondo, head of banking at Nasasa said: “The one mistake that banks make is to think stokvels are cheaper savings platforms and see them as a threat.” He recommended that it would be helpful if banks would mine the data on the saving groups and see them as connections to other service providers and as part of a eco-system.