Optimisation of the use and access to financial services at the base of the pyramid in South Africa

Abstract

At the recent South African Banking Associations inaugural summit held on September 2010, it was estimated that the unbanked South Africans have put approximately R12 billion “under their mattresses” (Greyvenstein, 2010). This money would have a huge impact in the banking system if it was banked. It is widely held that whilst this problem is not uniquely South African and as per the latest Finscope survey results, since 2004, when Finscope first began tracking the number of adults not being served, a steady decline has been noted over the years in the number of banked individuals. The 2009 survey shows a further 2% deterioration when compared to 2008 in the financially excluded category. The 2009 Finscope report findings also show for the first time since 2004, a decline in the percentage number of South African adults who are banked from 63% in 2008 to 60% in 2009. The financial services sector has been identified as playing a crucial role in this transformation through its financing activities. It is therefore in this context that Beck and de la Torre (2006) argued that broad access to financial services is related to economic and social development. The South African government has therefore implemented various initiatives to combat these challenges. These initiatives, some together with the private sector, include the Broad Based Black Economic Empowerment Act, Financial Sector Charter, Dedicated Banks Bill and the launch of the Mzansi initiative.The Government is aware that broad-based BEE cannot happen unless previously disadvantaged individuals, especially the poor, are able to access financial services – in order to borrow and invest in small businesses, to save and to protect themselves against risks. The basis of the research is therefore to explore some of the reasons for the low access to financial services in South Africa’s Foundation of the Pyramid (LSM 1- 4) and to find possible solutions by building a model that could possibly work based on propositions related to aspects of the literature around employment status and income, access to credit, some type of identifiable address / dwellings, education, use of technology and costs. The analysis of the proposed model using frequency, descriptive statistics and the results of the chi-square test upheld all but one of the propositions and showed the possibility of this model to work in South Africa. Copyright