Financial inclusion is severely skewed in South Africa, with higher income groups having more access to a range of financial services such as bank and savings accounts, loans, and insurance products. Those who are financially excluded have more difficulty accumulating wealth – further deepening this divide. But there are ways of overcoming this serious problem according to Zunaid Miya, MD of Local fintech company, Hello Pay.
Some are excluded by circumstance. Undocumented migrants are excluded by regulations such as FICA, while bigger financial institutions don’t accept asylum documents or foreign passports.
Others are excluded by choice. Some don’t want to be part of the formal banking system; others have a bad credit record and believe bank accounts can be drained by creditors; others believe they wouldn’t qualify for financial products and so they never apply.
The perils of financial exclusion are not just fewer opportunities for personal and business growth but also increased risk. People who don’t have insurance, for example, expose themselves to both financial and physical risk. At its worst, then, it impacts health and longevity. Even at its best, it’s simply greatly inefficient – not having banking products means dealing with physical cash, which is cumbersome and tedious.
How then, do we start bridging this divide?
1. Integrate the informal economy. Financial institutions need to acknowledge that a large portion of the South African economy is made up of informal trade. Without circumventing regulatory requirements, there needs to be a framework put in place that considers the circumstances of individuals and businesses in the informal space. These businesses need to be given the opportunity to be included in the formal financial system in a simple, easy-to-understand, and convenient manner.
That means education and awareness. Financial institutions need to embark on marketing campaigns that inform individuals and businesses in this informal space of the financial products and services available to them. In many cases, people simply assume that these products are reserved for higher income individuals and formalised businesses, when that’s not the case.
2. Reframe the ‘debt trap’. There are different kinds of debt and, again, that education is lacking. Bad debt favours consumption. Good debt enables production. When an SME borrows money to build assets, that creates wealth and job opportunities – enriching the economy at large. Consumer lending, however, is not asset-driven and income-generating – and often ends in a debt trap where the borrower is exploited by micro lenders.
We need to reframe debt as a society and enable individuals, small businesses and micro enterprises that have an entrepreneurial flair and the ability to grow to access funding and other financial services. This agenda needs to be driven in the underbanked or unbanked space especially.
3. Make compliance less onerous. Compliance requirements are a hurdle for consumers and SMEs. When faced with reams of paperwork and seemingly endless documents that need to be submitted, compounded by digital illiteracy, many are deterred.
Application processes need to be simplified so that applicants can be onboarded quickly and easily, in turn improving access to financial services and products. At Hello Pay and the Hello Group, we support our customers in overcoming these challenges by providing a simple-to-use digital transaction platform. Furthermore, we have a ground force of salespeople and agents across the country. They drive out to customers and start the onboarding process, collect documentation, and help them meet compliance requirements.
Though financial exclusion is a multi-faceted problem that won’t be solved overnight, these steps would serve to start bridging that divide. And in the most unequal country in the world, the time to act is now.