Making Access Possible (MAP) Swaziland

Cenfri on behalf of FinMark Trust presented the key findings and recommendations from Making Access to Financial Services Possible (MAP) Swaziland diagnostic report at the Stakeholder Workshop in Ezulwini, Swaziland. The workshop provided an opportunity for the MAP diagnostic team to test key findings with stakeholders and for stakeholders to provide feedback and comment on the findings for the final diagnostic report. 

The findings and recommendations were derived from a demand, supply and regulatory analysis based on the methodology developed by Cenfri, FinMark Trust and UNCDF as part of the global MAP initiative. The demand-side analysis draws from quantitative data provided by the Swaziland FinScope Consumer Survey 2011 and primary qualitative research.

 

MAP Swaziland was requested by the Government of Swaziland as input towards the development of a financial inclusion strategy for Swaziland. The Ministry of Finance has set up a Financial Inclusion Task Team comprising representatives from the Microfinance Unit, the Central Bank and the Financial Services Regulatory Authority. The Financial Inclusion Task Team serves as steering committee for the MAP project and is mandated to develop a financial inclusion strategy for Swaziland.

 

The presentation of the findings of MAP Swaziland provided an overview of the financial provision landscape in Swaziland (supply side), a regulatory analysis for the provision of financial services and financial inclusion, and used FinScope data to identify and describe 7 distinct target markets for financial inclusion in Swaziland (demand side). The target markets were identified firstly based on main source of income, and secondly based on key parameters as they influence the nature of the groups' demand for financial services (income, gender, geography, age, education levels, use of mobile phones and take-up of financial services). The following provide a short overview of the 7 distinct target markets identified in Swaziland:

Swaziland target markets

  • Civil servants are adults whose main source of income is salaries or wages from the public sector. They tend to be better educated, with higher income levels than the rest of the formally employed market. Thus they warrant analysis as a standalone category.
  • Company employees are adults whose main source of income is salaries or wages from a private business or company. Together with civil servants, they make up the formally employed market.
  • Informal employees are adults whose main source of income is salaries or wages from an individual or a farm.
  • Self-employed are adults who make their own living such as business owners, hawkers and street vendors. One would expect business owners and street vendors to be in different economic groups. However, their income and other profiles are very similar. Hence it was decided to group them together for the purpose of the segmentation analysis.
  • Irregular earners are adults who derive their main source of income from inconsistent sources such as piece jobs, farming, fishing, or selling handicrafts or something collected from nature. Just short of 28,000 individuals indicate money from farming as their main source of income, while about 58,800 derive their main income from piece jobs.
  • Private dependents are adults whose main source of income is derived from friends and family. This segment includes people who stated that their main source of income is remittances or money received from a member of the household, as well as those for whom a household member pays their expenses. The profile in terms of gender, age and urban-rural split is similar enough across these three sub-groups to classify them as one segment.
  • State dependents are adults whose main source of income is a grant from the government, notably old age pensions.

The construction of target markets allowed a unique new demand side perspective for the financial inclusion agenda and allowed for the identification of key priority areas for future extension of financial services as well as tailored supply side and regulatory recommendations that incorporates the needs of the various target markets. Based on the overall analysis, 5 primary priorities through which access to financial services can be improved in Swaziland were identified:

  1. Mobile money to transact and save. The pervasiveness of cash-based transactions and savings in the Swazi economy indicates the challenge pre-existing payment mechanisms have with reaching the majority of Swazi adults. MTN Mobile money presents an opportunity to facilitate low cost transactions and improve distribution for most adults in Swaziland. Since its introduction midway through 2011, the usage of MTN mobile money in Swaziland has grown steadily and now accounts for an estimated 38% of transactions. However, the relatively small number of active users (30,000 - equivalent to approximately 5.5% of the adult population) indicates that there are still some challenges related to mobile money. A combination of innovative product design (such as introducing super agents to aid rural agents' cash management) and regulatory flexibility (such as allowing mobile money accounts to exceed the current E4,000 cap and allowing MTN to earn interest on the float) could help to overcome these.
  2. Supporting dependents. According to FinScope (2011), 42.5% of Swazi adults receive income from friends or family (either within or outside their household) and this constitutes the main source of income for 68% (about 150,000) of these adults. A large portion of Swazis are therefore reliant on money sent through remittance channels both from within Swaziland as well as across the border. The World Bank estimates that 160,000 Swazis are emigrants (85% of which reside in South Africa) which equates to about 13% of the population living outside of Swaziland. These emigrants are an important source of income for many Swazi residents as they remit money back to dependents regularly. It is therefore vitally important to make both formal domestic and formal cross-border remittance channels as cheap and accessible as possible. Given the high cost of remittances through existing providers (particularly for cross border transfers), there is clear potential for alternative providers such as retailers or mobile money to play a larger role in money transfers. Specific financial services products targeted at expats and domestic remittance senders, such as specific education savings or health insurance for their dependents, could also encourage remittance flows and direct investment into the Swaziland economy.
  3. Managing the impact of risk. Swaziland suffers from a very high mortality rate (57% of FinScope respondents had suffered a death in the household in the last 12 months) and high rates of illness (37% of FinScope respondents had experienced a costly illness in the household in the last 12 months). Insufficient savings and the fact that community risk-pooling groups are not widespread in Swaziland mean that many Swazis are forced to borrow from informal moneylenders at interest rates of 20-30% per month towards the costs of insurable risks events. A modelling exercise shows that formal funeral insurance products offer substantially better value than informal credit to policy holders. Yet, take-up of insurance remains low outside of the formally employed market. There is therefore an imperative to extend the reach of insurance, especially life cover towards funeral expenses and education fees, as well as some kind of insurance to cover costs related to a health event for those who cannot necessarily afford comprehensive medical aid.
  4. Deepening bank reach. Banks already serve a large portion of the Swazi population (44% of adults have a bank account) across all segments of the population. However, evidence suggests that a high proportion of these bank accounts are either dormant or used only as a 'mailbox', with account holders withdrawing their entire salary monthly. This suggests that many bank account holders find limited value in their bank accounts but also, given the high costs of administering such accounts, presents an opportunity for banks to incentivise increased use of bank accounts by reducing costs and increasing balances (for example by offering a low value, short term funeral insurance policy to accountholders that exceed a specified balance throughout a month or sending reminders via SMS). This would provide greater value to account holders while at the same time allowing banks to reduce the number of unprofitable bank accounts.
  5. Getting credit basics right. Only 7% of Swazis use formal credit whereas 17% of Swazis access only informal credit at significantly higher rates of interest. Opportunities should therefore be explored to formalise credit provision including improved disclosure of costs to clients and introduction of credit bureau. An analysis of current SMMEs in Swaziland indicates that less than 10,000 (constituting about 13% of the total number of SMMEs) earn more than E2,000 a month and can realistically be termed aspirational, with the most likely potential to leverage credit for growth. Supply side information suggests that there are already sufficient vehicles to provide subsidised business credit to this market and that the availability of credit may not be the primary business constraint faced by SMMEs. Rather, the focus should be on creating an ecosystem conducive to SMMEs which includes appropriate savings vehicles (used to finance a far larger proportion of businesses), the ability to transact efficiently, a favourable business environment, infrastructure, investment in education and health, training and timeous payment of invoices by large clients such as in the public sector. The primary focus in terms of financial inclusion may therefore be to improve access to appropriate savings and transaction products rather than credit. Consumer protection in credit should be a key focus area to improve formal disclosure and reduce abuse by informal lenders (such as taking clients' bank cards and ATM pins)

Additional Info

  • Country: Swaziland
  • Institution: FinMark Trust
  • Date Published: 2014
  • Document Type: Presentations
  • Author/s: Christine Hougaard, Mia Slabber (de Vos), Jeremy Gray, David Saunders, Mia Thom, Barry Cooper
 

Making Access Possible (MAP) Swaziland

Cenfri on behalf of FinMark Trust presented the key findings and recommendations from Making Access to Financial Services Possible (MAP) Swaziland diagnostic report at the Stakeholder Workshop in Ezulwini, Swaziland. The workshop provided an opportunity for the MAP diagnostic team to test key findings with stakeholders and for stakeholders to provide feedback and comment on the findings for the final diagnostic report. 

The findings and recommendations were derived from a demand, supply and regulatory analysis based on the methodology developed by Cenfri, FinMark Trust and UNCDF as part of the global MAP initiative. The demand-side analysis draws from quantitative data provided by the Swaziland FinScope Consumer Survey 2011 and primary qualitative research.

 

MAP Swaziland was requested by the Government of Swaziland as input towards the development of a financial inclusion strategy for Swaziland. The Ministry of Finance has set up a Financial Inclusion Task Team comprising representatives from the Microfinance Unit, the Central Bank and the Financial Services Regulatory Authority. The Financial Inclusion Task Team serves as steering committee for the MAP project and is mandated to develop a financial inclusion strategy for Swaziland.

 

The presentation of the findings of MAP Swaziland provided an overview of the financial provision landscape in Swaziland (supply side), a regulatory analysis for the provision of financial services and financial inclusion, and used FinScope data to identify and describe 7 distinct target markets for financial inclusion in Swaziland (demand side). The target markets were identified firstly based on main source of income, and secondly based on key parameters as they influence the nature of the groups' demand for financial services (income, gender, geography, age, education levels, use of mobile phones and take-up of financial services). The following provide a short overview of the 7 distinct target markets identified in Swaziland:

Swaziland target markets

  • Civil servants are adults whose main source of income is salaries or wages from the public sector. They tend to be better educated, with higher income levels than the rest of the formally employed market. Thus they warrant analysis as a standalone category.
  • Company employees are adults whose main source of income is salaries or wages from a private business or company. Together with civil servants, they make up the formally employed market.
  • Informal employees are adults whose main source of income is salaries or wages from an individual or a farm.
  • Self-employed are adults who make their own living such as business owners, hawkers and street vendors. One would expect business owners and street vendors to be in different economic groups. However, their income and other profiles are very similar. Hence it was decided to group them together for the purpose of the segmentation analysis.
  • Irregular earners are adults who derive their main source of income from inconsistent sources such as piece jobs, farming, fishing, or selling handicrafts or something collected from nature. Just short of 28,000 individuals indicate money from farming as their main source of income, while about 58,800 derive their main income from piece jobs.
  • Private dependents are adults whose main source of income is derived from friends and family. This segment includes people who stated that their main source of income is remittances or money received from a member of the household, as well as those for whom a household member pays their expenses. The profile in terms of gender, age and urban-rural split is similar enough across these three sub-groups to classify them as one segment.
  • State dependents are adults whose main source of income is a grant from the government, notably old age pensions.

The construction of target markets allowed a unique new demand side perspective for the financial inclusion agenda and allowed for the identification of key priority areas for future extension of financial services as well as tailored supply side and regulatory recommendations that incorporates the needs of the various target markets. Based on the overall analysis, 5 primary priorities through which access to financial services can be improved in Swaziland were identified:

  1. Mobile money to transact and save. The pervasiveness of cash-based transactions and savings in the Swazi economy indicates the challenge pre-existing payment mechanisms have with reaching the majority of Swazi adults. MTN Mobile money presents an opportunity to facilitate low cost transactions and improve distribution for most adults in Swaziland. Since its introduction midway through 2011, the usage of MTN mobile money in Swaziland has grown steadily and now accounts for an estimated 38% of transactions. However, the relatively small number of active users (30,000 - equivalent to approximately 5.5% of the adult population) indicates that there are still some challenges related to mobile money. A combination of innovative product design (such as introducing super agents to aid rural agents' cash management) and regulatory flexibility (such as allowing mobile money accounts to exceed the current E4,000 cap and allowing MTN to earn interest on the float) could help to overcome these.
  2. Supporting dependents. According to FinScope (2011), 42.5% of Swazi adults receive income from friends or family (either within or outside their household) and this constitutes the main source of income for 68% (about 150,000) of these adults. A large portion of Swazis are therefore reliant on money sent through remittance channels both from within Swaziland as well as across the border. The World Bank estimates that 160,000 Swazis are emigrants (85% of which reside in South Africa) which equates to about 13% of the population living outside of Swaziland. These emigrants are an important source of income for many Swazi residents as they remit money back to dependents regularly. It is therefore vitally important to make both formal domestic and formal cross-border remittance channels as cheap and accessible as possible. Given the high cost of remittances through existing providers (particularly for cross border transfers), there is clear potential for alternative providers such as retailers or mobile money to play a larger role in money transfers. Specific financial services products targeted at expats and domestic remittance senders, such as specific education savings or health insurance for their dependents, could also encourage remittance flows and direct investment into the Swaziland economy.
  3. Managing the impact of risk. Swaziland suffers from a very high mortality rate (57% of FinScope respondents had suffered a death in the household in the last 12 months) and high rates of illness (37% of FinScope respondents had experienced a costly illness in the household in the last 12 months). Insufficient savings and the fact that community risk-pooling groups are not widespread in Swaziland mean that many Swazis are forced to borrow from informal moneylenders at interest rates of 20-30% per month towards the costs of insurable risks events. A modelling exercise shows that formal funeral insurance products offer substantially better value than informal credit to policy holders. Yet, take-up of insurance remains low outside of the formally employed market. There is therefore an imperative to extend the reach of insurance, especially life cover towards funeral expenses and education fees, as well as some kind of insurance to cover costs related to a health event for those who cannot necessarily afford comprehensive medical aid.
  4. Deepening bank reach. Banks already serve a large portion of the Swazi population (44% of adults have a bank account) across all segments of the population. However, evidence suggests that a high proportion of these bank accounts are either dormant or used only as a 'mailbox', with account holders withdrawing their entire salary monthly. This suggests that many bank account holders find limited value in their bank accounts but also, given the high costs of administering such accounts, presents an opportunity for banks to incentivise increased use of bank accounts by reducing costs and increasing balances (for example by offering a low value, short term funeral insurance policy to accountholders that exceed a specified balance throughout a month or sending reminders via SMS). This would provide greater value to account holders while at the same time allowing banks to reduce the number of unprofitable bank accounts.
  5. Getting credit basics right. Only 7% of Swazis use formal credit whereas 17% of Swazis access only informal credit at significantly higher rates of interest. Opportunities should therefore be explored to formalise credit provision including improved disclosure of costs to clients and introduction of credit bureau. An analysis of current SMMEs in Swaziland indicates that less than 10,000 (constituting about 13% of the total number of SMMEs) earn more than E2,000 a month and can realistically be termed aspirational, with the most likely potential to leverage credit for growth. Supply side information suggests that there are already sufficient vehicles to provide subsidised business credit to this market and that the availability of credit may not be the primary business constraint faced by SMMEs. Rather, the focus should be on creating an ecosystem conducive to SMMEs which includes appropriate savings vehicles (used to finance a far larger proportion of businesses), the ability to transact efficiently, a favourable business environment, infrastructure, investment in education and health, training and timeous payment of invoices by large clients such as in the public sector. The primary focus in terms of financial inclusion may therefore be to improve access to appropriate savings and transaction products rather than credit. Consumer protection in credit should be a key focus area to improve formal disclosure and reduce abuse by informal lenders (such as taking clients' bank cards and ATM pins)

Additional Info

  • Country: Swaziland
  • Institution: FinMark Trust
  • Date Published: 2014
  • Document Type: Presentations
  • Author/s: Christine Hougaard, Mia Slabber (de Vos), Jeremy Gray, David Saunders, Mia Thom, Barry Cooper