Delegates from Cenfri attended the launch of the FinScope South Africa 2013 consumer survey on 5th November 2013. Developed by FinMark Trust and funded by a national syndicate, FinScope is a nationally representative survey measuring access to, perceptions of and usage of financial services and products. Access and usage of formal financial services and products drive financial inclusion, which is at the heart of FinMark Trust, Finscope and its methodology. For more information concerning the FinScope consumer survey visit: http:www.finmark.org.za/finscope
FinScope has been rolled out in 18 countries in Africa and three in Asia. It was first launched in South Africa in 2002. Over this time the FinScope survey has been used in a multitude of ways to:
Cenfri primarily uses FinScope in South Africa on behalf of FinMark Trust. It aids in developing a set of hypotheses that can then be tested and supported by industry consultation and focus group discussion. In addition, it creates an incentive to bring private sector players to discuss the issue of financial inclusion, an issue they might have previously reserved for corporate social responsibility or poverty-alleviation minded organizations. Cenfri, on behalf of FinMark Trust, will use the 2013 Consumer Survey insights in their forthcoming update on the landscape of Microinsurance in South Africa.
Financial inclusion in South Africa increased from 72% in 2012 to 79% in 2013 (approximately 25 million to 29 million adults). The increase was largely attributed to an increase in formal credit and insurance, with formal savings remaining largely stagnant. Formal insurance usage increased from 6.2 million adults to 7.8 million. The growth was driven largely by formal funeral cover and to a lesser extent asset insurance. Formal credit usage increased from 13.1 million adults in 2012 to 14.2 million adults in 2013. The most significant growth was in the R3 000 to R8 000 income category from 1.9 million borrowers in 2012 to 4 million in 2013. Despite this growth, 5.7 million South Africans still remain excluded from formal financial services.
In addition to looking at the formal market, FinScope measures informal take-up as well. Informal insurance is declining with no adults enrolling in new informal burial societies. However, adults still remaining in burial societies; the number of adults that are both members of a burial society and have formal funeral cover from a bank or insurer increased from 15% in 2012 to 22% in 2013. Informal credit has also decreased, highlighted by only 3.1 million adults borrowing from family and friends, compared to 4.2 million in 2012. Finally, despite formal savings increasing slightly, informal stokvels remain the dominant savings mechanism in South Africa, used by 33% of adults.
Increased financial inclusion needs a long term view of the market, rather than just driving quantity or quality. At the core of financial inclusion is access to and usage of formal bank accounts. In 2013, 3.5 million more adults had banks accounts with formal institutions than in 2012. This was driven by both new banking entrants (1.5 million) and new SASSA card holders (1.9 million). The majority of new banking entrants came from the R3 000 to R8 000 income category, accessing credit to purchase additional assets and cover living expenses. The remaining increase in banked adults is from new SASSA card holders (1.9 million), 82% earn less than R3 000. SASSA cards act as a transactional account (basic form of bank account) and offer a potential entry-way into the formal financial sector.
However, challenges still remain in translating this short-term impact into a long-term market. The increased spending on assets has meant higher insurance take-up but leaves it dependent on the upsurge in credit. This has translated into more adults moving to higher Living Standard Measures (LSM) but without any increase in real income. Consequently, the sustainability of both markets have come into question with 4.7 million people with formal credit caught in a debt cycle and 12.5 million adults showing signs of financial difficulties. In addition, many SASSA card holders still prefer to trade in cash and are not utilizing their cards as an entry-way into the formal financial sector. It is estimated that 3.4 million or 34% of grant recipients taking out all their money as soon as it is deposited on their SASSA card.
Financial inclusion requires creative thinking around value and convenience. Informal insurance and savings markets remain popular with adults utilising both formal and informal cover. Within insurance, burial societies still provide a value that formal funeral cover cannot replace. Low-income households value the intrinsic cultural component, as well as the convenience of burial societies operating within the community. To some extent this is reinforced by sales agents, who have reportedly encouraged adults to remain members of their burial societies even when enrolling them in formal funeral cover. Either the value cannot be replicated or further innovation and creativity is needed.
Stokvels tell a similar story. South Africa is typically associated with a “lack of savings” culture, which if only looking at the formal figures might be true (13% of adults). However, FinScope reveals that 33% of adults are persistently saving informally in stokvels. They require disciplined savings behaviour, showing that culture is not a barrier to formal savings. However, stokvels’ structure of paying out all accumulated savings at the end of savings cycle is not conducive to long-term savings and national intermediation.
In some cases, the increase in formality has made it easier for adults to remain using cash. For example, 1.8 million grant recipients still get their money at SASSA pay points, finding that queues and crowds are reduced because most have gone to banks and/or stores to collect their grant money using their SASSA cards. As a result, this group of adults are not using their SASSA cards to make payments, draw cash or check their current account balance.
Interplay between different financial services increasingly important to understand. Financial inclusion covers multiple product areas (payments, store of value/savings, credit and insurance). It is becoming increasingly important to consider them as a portfolio of financial services and understand them as interrelated markets where the development of one market may be dependent upon the development of another market. As mentioned above, SASSA cards can drive the adoption of payments while reducing the ubiquitous nature of cash. Credit is increasingly being used to fund additional assets that require insurance policies, which is driving increased usage in the asset insurance market.
Alternatively, the relationships might not always be positive. The entrance of retailers facilitating low-cost payments has impacted upon the take-up of current accounts. Retailers attract entry-level customers through facilitating bill payments, remittances and insurance premiums. This is at the expenses of savings accounts offered by banks that have higher payment fees and are less accessible to many adults in South Africa, who prefer stokvels as their savings mechanism.
This interplay between financial services will be a major focus of the MAP initiative developed in partnership between Cenfri, FinMark Trust and UNCDF.
In summary, credit and payments are the only products that have achieved significant penetration in the previously excluded population. However, payments still remain largely outside of the sphere of banks and the increasing market for consumer credit adds fuel to an on-going over-indebtedness debate. Formal insurance and to a lesser extent formal savings still act more as complementary offerings than substitutes for informal ones. Formal insurance is still largely driven by funeral cover, for which many adults hold multiple policies, and asset insurance is being driven largely on the back of credit purchases. Savings has seen limited penetration and until the structure of offerings changes, informal stokvels are likely to remain the desired alternative.
Keynote speaker Crispin Soon challenged the audience at the launch of the FinScope 2013 consumer survey to consider: “if the industry were gone tomorrow, would anyone miss it?” Progress is being made, but sustainable markets, innovative design and the interplay between different product offerings will be critical for the industry.