FinMark Trust today launched the 2011 results of its annual FinScope South Africa survey. The survey revealed that overall levels of formal financial usage in South Africa was stable compared to 2010, despite an increase in the percentage of those older than 16 years who did not use formal financial products.
Despite the impact of the recent economic crisis, the overall levels of financial inclusion in South Africa have remained unchanged compared to 2010’s survey findings. 73% of adults are financially included (i.e. they have or use financial products/services from either the formal or informal sectors) whereas 68% use formal financial products (i.e. products from either a bank or another formal non-bank financial institution such as a microfinance company, registered moneylender or insurance company).
On the contrary, a decrease occurred in the informally served market, resulting in an increase in the number of South Africans that were considered financially excluded (i.e. they kept money in a safe place at home if they wanted to save and borrowed from family and friends if they needed to borrow). According to FinScope, 27% of South African adults i.e. 9 096 492 adults were financially excluded in 2011, up from 23.4% (7 816 691 adults) in 2010.
Attitudes and perceptions towards financial institutions may be a barrier to financial inclusion. The FinScope survey indicates that South Africans are concerned about bank charges and fees, while financial illiteracy and a lack of knowledge about other financial institutions are evident. Having said this, many consider having a bank account as aspirational and recognize its value.
Financial education is a key predictor of financial inclusion – individuals who are well informed have a higher chance of being served. This creates an opportunity for financial institutions to broaden their focus to all individuals who earn an income. The purchase of prepaid cell phone airtime and cash withdrawals remain the most frequently conducted transactions.
Results consistently indicate that South Africans interact with their cell phones regularly, which provides a major opportunity for increasing financial inclusion via cell phone banking.
Income generation activities amongst the South African adult population include receipt of money from others (33%), wages or salaries from a company (35%) and government grants (21%). The remainder of the population receive income through informal employment, piece or casual jobs, their own small businesses and employer pensions.
When evaluating lifestyle, the study shows that 54% of South African adults are satisfied with their current lifestyles – a slight improvement since 2010. South Africans generally feel that they belong in this country and are protective of their language and heritage.
However, more South Africans are concerned about their ability to reach their goals one day, which indicates a more pessimistic outlook for the future. This seems to tie in mainly with their financial outlook.
Half of the adult population (17.2 million) recognise that their financial situation is not ideal, and a further 47% find dealing with finances stressful. More individuals indicated in 2011 that they have not ensured that their financial future is secure and that they do not save regularly.
The FinScope survey shows that saving behaviour using formal products has remained stable at 24%, similar to 2010. Although most individuals recognise the importance of saving, 66% of the adult population indicated that they are not currently saving money.
Bank savings products/services have increased slightly, while informal saving has decreased slightly. The main reason for the absence of saving is a lack of funds and income. Although the majority of respondents agree that saving is important, it is not always within their means.
Investments in retirement products have decreased since 2010, increasingly because individuals do not have the money to invest. Pension funds are currently the most popular retirement products and are mostly paid for by the individuals themselves. An opportunity exists to educate a large number of South Africans on the benefits of long-term investments, especially in preparation for retirement.
As in 2010, the financial landscape in South Africa remains largely driven by transactional products (67%), followed by insurance (44%). The decrease in the use of insurance (50% in 2010 to 44% in 2011), coupled with an increase in the use of credit products (33% to 39%) speak to an increased vulnerability in terms of being prepared for a financial crisis.
Compared to other African countries, South Africa indicates a level of stagnation in the area of savings. This is an area of opportunity for the financial sector, especially in relation to supporting inclusion.
Overall, the percentage of banked adults in South Africa has remained stable since 2010 at 62.8% (21 184 871 adults). There was a general decline in the more traditional banking products, however, ATM cards, debit/ cheque cards, and saving and transaction accounts remain the most popular.
Cash withdrawals and buying cellphone prepaid airtime were the most popular transactions that individuals engaged in, whereas the more sophisticated banking transactions were conducted only by a select few of the general population.
The FinScope survey indicates that Mzansi awareness and usage has decreased from last year.
This raises an important question that needs to be understood further, namely: are banks substituting Mzansi with in-house entry level banking products or are Mzanzi accounts becoming dormant? This is significant especially since the Financial Sector Charter requires the banking sector to make banking more accessible to South Africans. 36% of individuals have never heard of the account before and those who use it, often indicate that it is their first account.
The majority of individuals who have not heard of Mzansi, fall within the LSM 4 to 6 range. This particular market is concerned with fees, and trust in a product and in financial institutions will impact decision-making. Furthermore, the research indicates that banks seem to be encouraging their clients less to take up Mzansi accounts than in 2010. It is also often the case that the banks will persuade clients not to open this account.
In terms of credit, there has been an increase in actual borrowing from 33% to 39%. This can mainly be attributed to an increase in borrowing from family and friends (from 6% in 2010 to 11% in 2011)‚ this category of the adult population is regarded as being financially excluded in FinScope. Formal borrowing has decreased slightly from 25% in 2010 to 24% in 2011.
The profile of individuals who borrow from family and friends is mostly Black, 28 to 44 years old, either unemployed (29%) or working full-time in the formal sector (22%) and mostly female. Borrowing in 2011 is linked mostly to essential purchases such as food, transport, school fees and electricity. In terms of access to credit, 61% of the population is not borrowing equating to a 6% decrease since 2010. On a positive note, survey results indicate that there is an improvement in the explanation of details provided regarding loans or credit cards. This could be a result of the National Credit Act.
57% of the adult population do not have any form of insurance in 2011, compared to 50% in 2010. The percentage of South African adults making use of formal insurance products also decreased from 40% in 2010 to 34% in 2011. Perceptions of insurance products and services are generally quite positive, and they are generally associated with protection from risk, safety and reliability.
On a functional level, insurance seems to be more likely to be associated with funeral cover, followed by an understanding of insurance as a savings and investment mechanism. Many South Africans see death in the family, funeral expenses and loss of the main income earner as a main threat to their livelihoods or income.
Results indicate that there is an increase in the take-up of life assurance among White, lower LSM and also lower income respondents, especially in rural communities. Insurance product ownership peaks among individuals between 35 and 49 years, especially for accidental death, disability and debt protection cover. A decline occurred in the use of short-term insurance with vehicle insurance and household content insurance being the two main short-term insurance products held by adult South Africans.
In terms of livelihood drivers of financial inclusion, the 2011 FinScope survey indicates that financial literacy is essential. So, it is not only having money that will predict inclusion, but knowing how to save and to make financial decisions that will impact on the outcome.
Those served informally have a negative perception about informal services and those who are financially excluded lack support and the capacity to work. They also generally have a negative outlook on life.
The most significant predictors of formal financial inclusion identified in 2011 include financial literacy, the ability to save money, access to facilities such as water, sanitation and electricity and the position held within the household.
There are three key interventions possible to increase financial inclusion in South Africa, in a sustainable manner. These include building capacity through financial literacy programmes where it is lacking, providing financial products, services or mechanisms that serve a specific need, and removing barriers, in particular, regulatory barriers to create a conducive and enabling environment for financial inclusion.
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