POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
MICROFINANCE IN SOUTH AFRICA
Marié Kirsten
DBSA
Rethinking the Role of National Finance Institutions in
Africa
The Role of SMEs
23 November 2006
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
Socio-Economic realities in South Africa 2005
• SA per capita income = $12 000 pa = 52 wealthiest out of
177 countries
• HDI declined from 85/177 in 1990 to 120/177 in 2004
• Gap between per capita income and HDI -68 in 2004
• This means that the economy is growing but the benefits of
growth is not shared
• > 40% of population are unemployed (wide definition)
• 25.2 million people live on < $2 a day (>50% of population)
• Highest Gini-coefficient in the world
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
Financial Access realities in South Africa 2005
63% financially served
Formal Banked
47%
Formal - Other
8%
53% without formal bank access
0%
Un-Banked
37%
100%
99% Black
16-29 age group
Tribal land and urban townships
No property or assets
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
SA
%
NAMIBIA
%
BOTSWANA
%
Banked
47
51
43
Formally served
55
53
49
Financially included
63
56
54
Excluded
37
46
46
BRAZIL
%
COLOMBIA
%
MEXICO
%
Banked
43
39
32
Formally served
79
48
36
Financially included
84
51
70
Excluded
16
49
30
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
What did government do about this?
• 1992 – Exemption of the Usury Act
• 1995/6 – NHFC and KHULA created
• 1999 – Micro Finance Regulatory Council
created and new exemption makes
registration compulsory
• 2002 – National Loans Register - database
of all MFRC lenders and loans
• 2003 – Financial Sector Charter
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
Financial Sector Charter - Access Targets
PERCENTAGE OF LSM 1 – 5 WITH
EFFECTIVE ACCESS TO:
2008 ACCESS
TARGET
2003 ACTUAL
USAGE
Transaction Accounts
80%
32%
Bank Savings Products
80%
28%
Life Insurance Products
23%
5%
Collective Investment Savings
Products
1% plus 250000
Negligible
Short Term Risk Insurance Products
6%
Negligible
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
Mzansi Bank Accounts
•
•
•
•
A Charter Initiative – Introduced October 2004
A valid ID the only condition
Deposits, withdrawals, transfers locally, debit card payments
ABSA, First National Bank, Standard Bank, Nedbank and the
Post Bank
• 91.3% Mzansi account holders are first time banked
• 62% are between 25 and 54, > 50% women, average balance
R300 (US$40)
• 1.5 million active accounts
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
FURTHER REGULATIONS…
• National Credit Bill – June 2006
• Dedicated Banks Bill
• Cooperative Banks Bill
and new Apex institutions…
• South African Microfinance Apex Fund
(SAMAF) – 2006
• Micro Agricultural Finance Schemes SA
(MAFISA) - 2005
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
The Small Enterprise Foundation
• Aim of poverty alleviation through microcredit
• A section 21 NGO – non-profit
• Founded in 1991, started operations in
January 1992
• Inspired by Grameen Bank
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
Current Performance
•
•
•
•
•
•
•
Currently serving over 35 000 active clients
% of women clients: 99%
Almost 300 000 loans since inception
Average loan size: $200 / R1547
Loans since inception: $45 / R330 million
Loan losses since inception: 0.5%
Attained full break-even in Sept 2004
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
Annually
35,000
Quarterly
Growth and Sustainability
Active Clients
30,000
25,000
Financial
Sustainability
20,000
15,000
10,000
5,000
'0
2
'0
3
'0
0
'0
1
'9
8
'9
9
'9
6
'9
7
'9
4
'9
5
Ju
n
Se '04
pt
D '04
ec
M '04
ar
Ju '05
n
Se '05
pt
D '05
ec
Ja '05
n
'0
6
Ju
n
'9
2
'9
3
0
110%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
Empowerment
•
•
•
•
•
Belief in people’s ability
People treated as clients
Hold people 100% to their group guarantee
Client must decide on the business
Client solves all problems
– Although there is support from other clients and facilitation from
staff
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
SEF vs. MFI Peers
Indicator
Total Active Clients /
Total Staff
Loan Officer
/ Total Staff
Portfolio-at-risk > 30
days
SEF
MFIs by Age
MFIs by
Region
219
128
162
82%
58%
56%
0.5%
3.0%
2.0%
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
How SEF works …
•
•
•
•
Clients form groups of 5
Each receives their own loan for their own business
All group members guarantee each others loans
Groups meet fortnightly in Centres of about 8 groups
meeting at a time
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
Key issues….
• SEF is achieving > 25% growth a year currently
• SEF achieved break even 12 years after conception
• The profitable SEF is growing much faster than the
non-profitable SEF
• There is absolutely no trade off between impact
(reaching the very poor) and profitability
• Competent management made all the difference
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
Financial Sector Charter
LSM 1-5 in summary
• 63% (19m) of adult population
• 79% of whom have monthly incomes of less than R1,000
• …but of whom 21% (4m) have incomes of between R1,000 –
R6,000
• 94% black
• 10,3m living in rural areas
• 68% unbanked; 95% uninsured, long or short
• 3,1m child grant recipients (total 3,6m)
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
New SEF initiatives
• IMAGE RESEARCH – HIV/AIDS and Gender
Violence training combined with microfinance
– Substantial improvement in the financial performance at
participating centres
– A significant decline in gender based violence amongst training
recipients
• SEF is also pioneering life insurance for its clients
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
Sustainability
• Attained full break-even in Sept 2004
• Now expanding from 27 000 to 45 000 clients
– Now covering 95% of all costs
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
Current Performance …
• Write-off policy: 85 days
• Current Portfolio at risk 0.7%
• Loan losses since inception 0.5%
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
So what does it all mean?
•
Access targets for banking now seem very distant
 Accessibility will far exceed active usage by 2008
 1% increase in banked
 46% “can easily live life without a bank account” – 27% of currently banked
people agree with this statement!
•
•
Mzansi clearly not the silver bullet
Adherence to cash continues
 Convenience of cash is compelling
 Where are the debit cards?
•
Expectation of price competition
 Mzansi and cellphone banking
•
Watch the FSM 3-5s!
 Many already banked but they are hungry for more products and more
knowledge
•
•
Need for cheaper, simpler products, especially in insurance
Financial literacy
 Urgent need for financial literacy support across the industry
 Convenient access to money advice
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
Access strand of financial services
Developmental frontier
Formally served (55%)
47
0%
20%
Financially excluded
8
40%
8
60%
Black
Female
30 – 44 years
Tribal land
LSM 1- 4
Formal - Bank
Formal - Other
Informal
Unbanked
37
80%
100%
Black and coloured
16 – 29 years
Tribal, rural and urban informal
LSM 1 - 6
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
“The apartheid system severely distorted the South African
financial system. A handful of large financial institutions….
centralize most of the country's financial assets.
But they prove unable to serve most of the black community,
especially women. Nor do they contribute significantly to the development
of new sectors of the economy.
Small informal-sector institutions meet some of the needs of the
black community and micro enterprise. They lack the resources,
however, to bring about broad-scale development” (RDP, 1994).
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
First Economy
Commercial
Banks
Commercial
Micro Lending
Second Economy Industry
Middle
Class
Salaried working
class, and self
employed (small
business)
o
vel
De
Economically Active Poor)
(Micro Enterprise)
Existing State
Agencies
(Khula)
Credit Unions,
Cooperatives
R 10 000
en
pm
tal
Mic
a
Fin
ro
Very Poor
(Survivalist Enterprise)
e
nc
‘Hard Core’ Poor/ Destitute
R300
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
Awareness of Mzansi
(as at July 2005)
551,000 say they have the account
469,000 are using it
193,000 (35%) new to the banking industry
90% of users say Mzansi is more affordable
27% say they don’t know enough about it
68% say it is “not for people with higher incomes”
2%
11%
54%
33%
Undercount against BASA’s figures
- a study of perceptions
N ever h eard o f M z an si
H eard b u t n o t
co n sid ered o p en in g
H eard o f an d co n sid ered
o p en in g
H ave M z an si