It’s not only about having a bank account, but actually about all of the resources that a person can access through it. Financial inclusion is one of the main challenges of the African continent, and South Africa still has too much to do about it.
According to information delivered by the World Bank at their Global Findex Database 2021 Financial Inclusion, Digital Payments and Resilience in the Age of Covid-19, 85 percent of the adult population have, at least, one bank account. Of course this reflects an important improvement compared to a decade ago. Yet, almost 6 million adult persons have no connection to the financial system.
The concept of financial inclusion has been defined as “the availability and equality of opportunities to access financial services”. In simple terms, it refers to the fact that persons -and also companies- can easily access products such as bank accounts, equity, insurance products and traditional or online loans, in affordable conditions.
When it comes to financial inclusion in South Africa, it is easy to notice that there is still a significant gap associated with the socioeconomic level of the population. In this respect, higher income groups have, of course, almost guaranteed direct access to most financial services. Meanwhile for the percentage of population with lower income the access to, at least, one bank account gets harder which also difficulties wealth accumulation and deepens the gap.
Financial exclusion means less opportunities for individual growth and entrepreneurship. If you don’t even have a bank account, how would you get a loan to develop your business or even receive payments? At the same time, this exclusion increases risks for those excluded. For example, the fact of not having any kind of insurance exposes people to health and financial damages.
Which are the main factors that affect financial inclusion/exclusion?
Actually, not everybody remains out of the financial system for the same reasons. One of the basic elements to get into it is, of course, the possibility of being identified for the institutions. Then if a person is undocumented, like some groups of migrants, most regulations (ex. FICA) prohibit the access to bank accounts. The same happens with people that can only show foreign passports or asylum documents.
On the other side, some percentage of the population may choose to remain out of the formal financial system. In this group of people usually there is a lack of information which justify their thoughts such as believing they wouldn’t qualify for any kind of products -so they wouldn’t apply for them-.
In this context, the first challenge to promote inclusion is the integration of the South African informal economy. To do so, legal regulations need to get adapted to those individuals and businesses which make part of informal markets. Simple manners are required to extend the system in an easy-to-understand way.
These measures require joint work between the public and private sectors. Institutional awareness and education are the pillars.