policy initiatives to expand financial outreach in south africa microfinance in south africa marié...

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


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

Authorised User

From DBSA 2005 Development report page 41, quoting Meth (2004). The figure is a 2002 figureOne would get a similar figure using 2000 National Survey Data and the Household Subsistence Level of R920 per household

Authorised User

From DBSA 2005 Development report page 41, quoting Van de Ruit & May Meth (2003: 23). The figure is a 2000 figure


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


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


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

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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


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

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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

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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


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


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


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


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%


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


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


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)


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


Sustainability

• Attained full break-even in Sept 2004

• Now expanding from 27 000 to 45 000 clients– Now covering 95% of all costs


Current Performance …

• Write-off policy: 85 days• Current Portfolio at risk 0.7%• Loan losses since inception 0.5%


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


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


“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).


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


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

policy initiatives to expand financial outreach in south africa microfinance in south africa marié...

Documents

south africa slide

financial outreach

south africa sa

south africa microfinance

policy initiatives

financial sector charter

world slide

grameen bank slide