Creating true financial education and inclusion is key in alleviating South Africa’s poverty crisis.
In South Africa, more than 55% of the country lives on the upper-bound poverty line (R1 227 per person per month), with many living below that. If we consider that many of these consumers are taking care of family members, the true impact of this issue is not easily measurable.
With such concerningly high statistics, there is no doubt that much needs to be done to drive down poverty. Finding solutions to ensure that South African citizens have sufficient funds to satisfy their basic human needs is a fundamental corporate imperative. But where do we start? Or perhaps the question is: How do we improve on the initiatives already being brought forward?
Poverty intensifies through a number of factors, but at the very core of this issue is a lack of financial literacy and inclusion.
Financial literacy is the building block to financial freedom. This couldn’t be more important to those living on the breadline. Making sure one knows how to best utilise every last rand is crucial. While this may not drive citizens out of poverty immediately, it will help them understand how to manage their budgets, when to utilise credit and how to empower themselves to break free from the debt cycle.
Programmes that encourage financial literacy can go a long way in not only ensuring consumers know how to budget and manage their money, but also in assisting to minimise debt – one of the key contributors to poverty. It’s about changing a mindset and giving consumers the opportunity to be truly financially fit. Helping citizens understand how their money can work for them and, most importantly, changing their perception of money and wealth are key to improving financial literacy.
The World Bank indicates that financial inclusion is a critical element in the journey towards poverty reduction and economic growth – both of which are central to South Africa’s financial objectives. In the past few years, we have seen a number of incredible innovations from the banking sector that look at banking the unbanked. These advancements have aimed to build and strengthen the lower class by providing access to savings pockets, bank accounts and responsible lending platforms.
Similarly, in the insurance sector, products such as prepaid funeral cover and being able to access long-term insurance through USSD codes have been fundamental in protecting the financial future of the children and families of South African consumers. A core focus here is on creating opportunities for access to products that are affordable and adaptable for the lower income earner to enable them to have peace of mind that their family will be protected in the event of their death.
However, it’s not only about access to products, but also about ensuring that when a consumer needs to claim, they can do so quickly and seamlessly. Consumers should not be left creating large amounts of debt to pay for a funeral or live day to day. As such, innovations in claims processing – such as the ability to make a decision within three minutes on funeral claims – make a fundamental difference in people’s lives and ensure they have immediate access to their money.
Similarly, fintech is becoming one of the major contributing factors to financial inclusion by creating a new generation of savvy savers and investors, and creating financial access that once was not afforded to the poor. If we consider that 85% of South Africans have a mobile phone, then using a fintech model to create inclusion is a substantial move in the right direction. Considering the number of people entering the formal financial services sector who have no prior dealings with the legacy financial services’ processes and systems, embracing digital services is likely a more viable option.
Mobile-based money services, such as M-Pesa in Kenya, use a simple text message to allow people to send and receive money. The M-Pesa system has resulted in almost half of Kenya’s gross domestic profit (GDP) now flowing through the system and increased access to financial services to 83% of the population.
Fintech is shaking up the way consumers pay and borrow money, while also breaking down barriers to important investment products and services. In the current decade, fintech ensured more than US$100-billion in investments. If we consider that there are approximately 1.7 billion adults globally who don’t have access to financial services, it’s easy to see why fintech innovations that provide solutions for these consumers can have a consequential social and economic impact.
Lastly, we need to consider the impact of job creation and empowering the informal sector, often times those who feel the pinch of financial exclusion and poverty.
Government is playing a sound role in driving the job creation agenda and empowering those entrepreneurs that have previously been overlooked. Today, government is enthusiastic about regulatory approaches that embrace innovation, and Treasury is looking to boost access to development financing for small, medium and micro enterprises (SMMEs) by reducing red tape.
Similarly, the financial services sector is looking at ways to reduce barriers to entry and find solutions that encourage entrepreneurship and make access to business ownership easier. For example, prepaid funeral cover is a product that has entrepreneurship at its core. It enables township business owners to sell prepaid funeral insurance as an additional income stream – without the regulatory red tape that comes with being a financial institution.
Statistics show that approximately 17% of total employment (one in six South Africans who work) are employed in the informal sector. It is, therefore, an integral contributor to the economy. More importantly, though, the informal sector has real potential to contribute to employment and reduce poverty. So promoting such entrepreneurial spirit provides an opportunity to inject the necessary money into less privileged households and encourage economic equality.
The financial services sector is integral to the alleviation of poverty. Given the resources available to the sector and the potential for real innovation to address some of South Africa’s most pressing issues, it essential that the sector supports government in boosting job creation, financial inclusion and education.
The country’s National Development Plan (NDP) aims to fast track broad-based growth to transform the economy, create jobs and reduce poverty and inequality by 2030. As a sector that has the power to positively impact GDP growth, financial services players need to take a collaborative approach to meeting these key objectives – or risk leaving South Africa’s poor to continue to suffer the burden of financial insecurity.