The 2015 FinScope survey shows that in South Africa levels of financial inclusion remain stable at 87% compared to 86% in 2014. About 31.2 million (84%) of adults are formally served, that is they have a bank and other formal non-bank product/services, compared to 80% in 2014. While overall inclusion figures have not changed substantially, the make-up of inclusion in terms of product usage has changed ? the percentage of the banked population increased from 75% in 2014 to 77% in 2015, while the percentage of adults relying exclusively on informal mechanisms to manage their money declined from 6% in 2014 to 3.4% in 2015.
Quality of Financial Inclusion
The Quality of Inclusion Measure indicator (Q-FIM) addresses (i) the ability to use a transactional account to purchase goods and services, (ii) a savings account to preserve wealth, (iii) access to credit to increase productive capacity or improve the quality of life, (iv) to use insurance services as a protection against unforeseen events and risks, can go a long way in facilitating a better life for the poor. Q-FIM illustrates that high levels of inclusion do not necessarily mean that people are benefitting from the financial products that they have, for example 50% of the financially included adults are ?thinly served?. The high level of thinly served amongst the financially included population is driven by low usage of digital payments. For example, only 13.7 million (37%) adults use digital payments on a monthly basis of which 63% opt to use the traditional brick and mortar branches to pay bills, send remittances or transfers. They do not make the best use of transactional products they have to save on transactional cost, time, transport costs and queuing time ? thereby not improving the quality of life.
Similarly low financial products optimisation is driven by lack of product knowledge and lack of innovative products that meet consumer?s needs. For example, FinScope shows that 5.5 million adults have 2 or more funeral cover from different providers. Innovative and product consolidations for funeral cover can greatly increase the benefits and possibly reduce the monthly premiums ? thus resulting in a well balanced portfolio of products.
Shockingly, 56% of the salaried adults do not have retirement financial products ? this places a burden on their families and the state to provide for them when they are past the working age. Making old-age/retirement provisions increases the quality of the family by preserving wealth.
Therefore Q-FIM seeks to find ways that consumers can maximise the utility and economic benefits of financial products they currently hold leading to a shift from being thinly served to adequately served.
Only 61% of the population know which bank account is best suited to them while 59% feel that banking fees are too expensive. 44% of the population understand the differences between banks, while 42% understand the differences between banking products that are offered.
There has been an increase in savings which seems to be attributed to the government push on tax free savings. A fairly significant number of salaried people are saving for short term needs. 6.9 million (56%) of salaried people do not have long term savings which impacts negatively on retirement. For those saving on a long term basis, 42% is for emergencies and 18% to provide for family in the case of death. Only 19% is for retirement. Medium term savings is mostly for emergencies (44%) food (27%) and education (21%) while the drivers for short term savings are emergencies (44%), school fees/education (20%) and food (19%).
Credit and Borrowing
More people are tapping into credit mostly via formal products. Credit increase is mostly driven by the unsecured loan environment ? people are using credit for short term immediate needs such as food (26%), emergency (26%) transport fees (12%) bills (10%), and clothes (10%). This seems to be more prominent in the informal space rather than the formal space. Across all regions in South Africa, people are accessing credit, particularly in Kwazulu Natal (12%), followed by the Free State (11%) and Western Cape (10%).
According to the survey 18.5 million people are insured ? however only 6.6million have non-funeral insurance and 5.5million have two or more funeral cover products. There is a drop in life insurance products evident amongst the 18-29 year category from 24% in 2014 to 15% in 2015 and among those earning between R1000-R2999. 13.7million people have considered cancelling insurance and investment policies to pay back money that they have borrowed.
According to the study, although smartphone penetration in the adult population is narrowing the digital divide with about 18.9 million adults having smartphones, only 40% of adult population use smartphone apps. 31% of the adult population use cellphones to manage their finances, mainly to buy airtime while about 2 million adults remit money through cellphones, increasing by 27% from 1.5 million in 2014. 37% of the population use digital payment mechanisms on a monthly basis.
People are struggling to stretch their money
The survey shows that people are struggling to stretch their money ? for example 28% have problems making ends-meet in 2015 as opposed to 24% in in 2014. The survey also reveals that people desire financial security (70%). Approximately 10 million people (26%) are unemployed and 11 million are using social grants. Households are under financial pressure with many claiming to receive support from others and fewer people are remitting.
Overall the study shows that despite the challenging macro environment in South Africa, there has not been a dramatic change in financial inclusion. However, there is a general concern on the level of financial inclusion which is defined as thinly served due to (i) low usage of digital payments, (ii) insurance being driven by multiple funeral cover, (iii) lack of relevant retirement products aimed at salaried low income earners, and (iv) growing in unsecured lending mostly used for short term purposes. FinMark Trust continues to be forward thinking through its investigation of the next generation of financial inclusion indicators such as Q-FIM.