POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA MICROFINANCE IN SOUTH AFRICA Marié...
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POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
MICROFINANCE IN SOUTH AFRICA
Marié KirstenDBSA
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
Formal Banked 47%
Un-Banked 37%
0%
Info
rmal –
8%
Form
al -
Oth
er
8%
100%
53% without formal bank access
99% Black16-29 age groupTribal land and urban townshipsNo property or assets
63% financially served
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
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
Financial Sector Charter - Access Targets
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
Growth and Sustainability
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
0%10%20%30%40%50%60%70%80%90%100%110%
Active Clients
FinancialSustainability
Annually Quarterly
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
SEF MFIs by AgeMFIs by Region
Total Active Clients / Total Staff 219 128 162
Loan Officer
/ Total Staff 82% 58% 56%
Portfolio-at-risk > 30 days 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 financia l serv ices
47 8 378
0% 20% 40% 60% 80% 100%
Formal - B ank
Formal - Other
Informal
Unbanked
B lack
Fem ale
30 – 44 years
T ribal land
LSM 1- 4
B lack and co loured
16 – 29 years
T ribal, rural and urban inform al
LSM 1 - 6
Form ally served (55% ) Financially excluded
D evelopm ental frontier
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
Middle Class
Salaried working class, and self
employed (small business)
Economically Active Poor)(Micro Enterprise)
Very Poor(Survivalist Enterprise)
‘Hard Core’ Poor/ Destitute
Commercial Banks
Commercial Micro Lending
Industry
First Economy
Second Economy
Existing State Agencies(Khula)
Credit Unions, Cooperatives
R 10 000
R300
POLICY INITIATIVES TO EXPAND FINANCIAL OUTREACH IN SOUTH AFRICA
Awareness of Mzansi(as at July 2005)
N e v e r h e a rd o f M z a n s i
H e a rd b u t n o tc o n s id e re d o p e n in gH e a rd o f a n d c o n s id e re do p e n in gH a v e M z a n s i
54%
33%
11%
2%551,000 say they have the account469,000 are using it193,000 (35%) new to the banking industry90% of users say Mzansi is more affordable27% say they don’t know enough about it68% say it is “not for people with higher incomes”
Undercount against BASA’s figures- a study of perceptions