Access to financial services for individuals and small enterprises in South Africa has expanded in recent years but there is still no full inclusion, a manager told CNBC Africa on Thursday.
“We find that the South African financial system is actually quite as inclusive as systems when you look at the headline numbers in the countries which South Africa compares itself with, such as the BRIC countries, Brazil, India, China and Russia,” said World Bank manager of Africa Finance and Private Sector Development Unit Michael Fuchs.
“But there is a big disparity between the higher income groups who use the financial system a lot and those in the lower income groups that don’t seem to use the financial system that much.”
While South Africa boasts an advanced and inclusive financial and banking system, a World Bank global survey on financial services found that low income individuals and small to medium enterprises in South Africa struggle to get access to loans because of a poor or non-existent credit history, blacklisting as well as unsuitable collateral.
Their only other option of accessing credit for those in this informal financial sector is through micro loan companies or loan sharks, where interest on unsecured loans can be double the amount of a bank loan’s interest.
Cooperatives and microfinance institutions are also lot more limited in South Africa than in countries such as Uganda, Nigeria and Kenya, where microfinance services and businesses are booming and have allowed a significant number of people in the informal business and income sector to become a part of the formal banking sector.
“The startling thing in South Africa is the concentration in the banking system, if you look at the top five financial institutions they have about 97 per cent of the total assets in the baking system in South Africa,” added Fuchs.
Low income individuals who have access to financial services, on the other hand, are reluctant to use them because of issues of trust and the cost of using the financial services.
Access to bank branches and ATMs also determines the incentive for low income individuals to use formal financial service providers such as banks. South Africa’s expansion of access to financial services for individuals and small enterprises could stimulate growth.
“We find that there is a difference between South Africa and other countries is how much the people who are included in the financial system actually use the financial system,” said Fuchs. “Those who actually use the financial systems in South Africa have access to a world class financial system.”
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