Meet the challenges of financial inclusion

Relative to its peers in the SADC region, South Africa has a high percentage of people with formal bank accounts. While 94{915f2fd5aca4c3a34c5cb69d7973bd97975047c315a8e3a00cfb3db88c0fb71b} of the adult population in the Seychelles has a bank account, and 85{915f2fd5aca4c3a34c5cb69d7973bd97975047c315a8e3a00cfb3db88c0fb71b} do so in Mauritius, South Africa’s banked adult population stands at 77{915f2fd5aca4c3a34c5cb69d7973bd97975047c315a8e3a00cfb3db88c0fb71b}.

This contrasts starkly with the likes of Madagascar or the Democratic Republic of Congo, where only 12{915f2fd5aca4c3a34c5cb69d7973bd97975047c315a8e3a00cfb3db88c0fb71b} of adults have bank accounts. In Angola, the ratio is 20{915f2fd5aca4c3a34c5cb69d7973bd97975047c315a8e3a00cfb3db88c0fb71b}.

These are figures produced by the Finmark Trust, an organisation set up more than a decade ago to promote financial inclusion. And at face value, they may appear to suggest that South Africa is measuring up reasonably well.

However, the Trusts’s Dr Prega Ramsamy says that there is a lot more to financial inclusion than whether or not someone has a bank account.

“It’s a multi-dimensional problem,” he told the Actuarial Society 2016 Convention in Cape Town. “There is an element of access, but there is also an element of affordability, an element of proximity, and most importantly an element of quality. We might have huge access in terms of people having bank accounts, but it doesn’t necessarily mean that they are financially included because the quality of such access might not be there.”

He pointed out that often products are inappropriate or inaccessible.

“At the moment there are about 20.9 million people in South Africa with access to insurance,” he pointed out, “and of those, 18.9 million have funeral cover. So funeral insurance completely dominates the sector.”

He acknowledged that there is a cultural aspect to why this is such a popular product, but he questioned why so many people are able to afford funeral policies but don’t have any other long term risk cover or savings.

Ramsamy pointed out that ten years ago, about one million South Africans had multiple cover, in that they held more than one funeral policy. That number has grown to five million. Yet the penetration of other risk products has remained very low.

“We sit in an office and think we can provide insurance, but we don’t really know if this kind of insurance fits the needs of the people we are selling it to,” he argued. “Agents are also just interested in selling numbers for commissions, but don’t ask if what they’re selling is the type of insurance or product that their customers need.”

Speaking at the same event, Ruth Benjamin Swales of the Asisa Foundation acknowledged that there is a real challenge for financial services companies to design more relevant offerings.

“For instance we have many people in South Africa who work intermittently,” Swales said. “But most savings and investment or insurance products require monthly contributions. Just that minimum requirement excludes many people from being able to access relevant products that could improve their financial well-being.”

It is obvious that product providers need to find different models, both in terms of the products they are offering and how they are distributed. For instance, if funeral cover has such wide reach, might it not be possible to attach other products to these policies, such as savings accounts or retirement annuities.

Mobile technology also offers extensive opportunities. In East Africa, where mobile money has been hugely successful, companies are also offering micro-loans and micro-insurance on mobile platforms.

Leave a Reply