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The demand side of financial inclusion in SA

- Kemantha Govender

Are we paying attention to the demand side of financial inclusion in SA?

In an interview on Power FM, WSG researcher Loyiso Maciko says not enough attention is being paid to the demand side of financial inclusion when it comes to rural communities in South Africa. He is a PhD candidate and his dissertation is titled “Financial Inclusion in a Rural Context: A Case of Usage in South Africa’s Rural Communities”.

He says while the topic has been extensively researched, it has merely been reduced to the supply of financial services

“Now we are taking a different angle in terms of the usage. We are asking is the access [of financial services] being complimented by the usage for the betterment of the people,” says Maciko.

The conversation based on Maciko’s thesis highlighted how the imbalances of the past are still rife in certain parts of South Africa and how important it is to bring the marginalised groups from rural areas into the financial sector so that they reap the same benefits enjoyed by those in urban areas.

He argues that the access component of financial inclusion has made people remain with the potential of using financial services however when access is not complemented by usage, the concept of financial inclusion becomes futile. He tracked this back in 2006 when government and multilateral institutions created low bank accounts for low income earners in attempts to create an inclusive society.

“I looked at how access to Mzansi account expanded by approximately six million people however this was never complimented by usage as it is only a mere 3.5 million people that used Mzansi account.

“I acknowledge the importance of access to financial services as a precondition to financial inclusion however the ultimate goal should be the use of financial services because it is as a result of use that people can be able to obtain the benefits of financial services intended for them. Most people in rural communities use a bank account as a mailbox rather than as a store of value,” Maciko adds.

He suggests that as a result of access to financial services, rural households have remained with the potential of having contingency planning, the potential of access to credit markets and potential for wealth creation however they never get to be beneficiaries of those financial services aimed to help them. This then exposes them to informal and exploitative markets.

One of the objectives of this work was to investigate factors that impede the usage of financial services in rural communities of South Africa. Focus group discussions were conducted in rural communities in the Eastern Cape and KwaZulu-Natal. The study identified some of the challenges from the demand side to be distance, high traveling costs to the nearest financial institution, source of income and bank charges to mention a few. This was found to be widely prevalent nationally through the finscope data.

He says his study suggests that access and use of financial services has a non-uniform impact on household wealth thus, for effective poverty eradication in rural communities, there is a need for customised financial services and products aimed at addressing the explicit needs of the marginalised, as their needs diverge along the poverty distribution line.

Some of the findings include:

  • Improved access to formal financial services has not converted into usage hence the limited effect on the welfare of the poor, as it unintentionally assumes that their needs are alike throughout the wealth supply line. Because the impoverished are often detached from the formal economy as it is the case with the rural residence that partake on this study hence they do not derive any benefit from most formal economic initiatives, policies aimed at improving their well-being through access and usage of financial services.
  • Government and financial institutions should identify linkages with informal saving groups, such as village savings and loan associations and self-help groups. This approach will assist in the transition of informal groups within the formal financial system. This will lead to the consumer confidence of the poor rural inhabitants benefit from the formal financial system. This integration would improve the involvement of the excluded poor rural individuals. It will further enable and initiate the upscaling of access to financial services thereby improving the quality of life and economic development at large.
  • There is a variety of income segments between those in rural communities and the urban counterparts hence there should be a different way of quantifying the costs of the services provided to them.
  • There is a need for financial literacy as a mechanism of changing the behaviors and perceptions of people and ways of integrating this into the curriculum.

Maciko challenges government, entrepreneurs, and financial institutions to come up with innovative ways that would enable them to tap into this market if there is to be social change for the people in rural communities and most importantly to readdress the wide imbalances that exist in the usage of financial products between urban households and urban households.