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SA economy needs financial inclusion for growth

Banks can service the lower end of the market and still make a profit, states Nthabiseng Moleko.

WARREN THOMPSON:  In our next segment I caught up with Nthabiseng Moleko, a lecturer in Managerial Economics and Statistics at the University of Stellenbosch Business School. She is also a commissioner in gender equality. The discussion was around why we have not been able to include more people in the banking system with the obvious benefits that that would bring to the economy by making them economically active.

Ms Moleko, we have very capable commercial banks that should be looking at a market as large as this. I think elsewhere in your press release you allude to the fact that 30 million people in our country live on less than R1 000 a month. So, with technology that can certainly be rolled out at a fraction of the cost of bricks and mortar buildings, why do you think we haven’t had participants or entrants into this market providing these solutions?

NTHABISENG MOLEKO:  There is a perception that if you service microenterprises and you service the unbanked, it’s actually not profitable – which is I think something that needs to be discussed and engaged.

The use of mobile services, which is what you are asking, brings to the fore what I would call innovations in providing access to banking products, and banking products that also support people in terms of what they need to do.

So for instance if you look at South Africa’s inequality, which you mentioned, we have a massive not just unemployment problem, but also inequality in the sense that it’s a real constraint to social development, I believe and also social cohesion.

I believe that the banks can service this market and still make a profit. But I think we need to move towards this, have more enterprises that are interested in profit but also have a social objective, which is where microfinance comes in, microfinance-type institutions that can support this market which are specifically generated to help what are called microenterprises and rural entrepreneurs that banks are not servicing.

It is profitable. You do have the type of industries and services that are offered in many emerging markets in Mexico, in Peru, in different African economies.

It’s a question of innovation, it’s a question of will with banks and your old financial institutions. But I do believe that you cannot look only at the bottom line. We’ve got to look at equality in South Africa and redistribution and I think some of the tools that need to be put in place. Innovation in our banking products is something that I definitely would encourage.

WARREN THOMPSON:  I’m not sure if you caught this last week – Michael Jordaan launching Bank Zero. Here’s a man who is certainly capable of disrupting with technology. Between our banks and our mobile-phone providers we haven’t come anywhere near, from my sense of it, achieving what the likes of M-Pesa has done in Kenya. When I start looking at that and I think well, is it because, if you talk to Michael, how long it took to get a banking licence for Bank Zero, is it perhaps the licensing, the regulatory environment that is also very sophisticated in this country, that’s perhaps not allowing these entrepreneurs to enter these markets and disrupt as quickly as they would like?

NTHABISENG MOLEKO:  Absolutely. You find that there is quite a stringent regulatory framework within financial services. So the financial sector itself, the capital requirement, the…requirements, the application to the Reserve Bank, the capital adequacy ratios that one has to have, are all very stringent. It’s not only whether you have the capacity to apply, but you also have to have the capital within which to make these applications and prove that you have the balance sheet and the necessary assets on your balance sheet.

So I think those are two constraints that anyone would face in any sector if you were entering into the financial services sector. I think it is necessary for stability. You will be using people’s finances and so forth. But I do think definitely that government in the event that your social entrepreneurs who are entering into this space, they should find support in terms of streamlining some of these micro-finance-type solutions, and service providers who actually have a double bottom-line agenda.

And I think if there were partnerships to kind of fast-track these types of enterprise and entrepreneurs it would definitely aid in the problem of access and inequality access to these types of service.

So I do think that there are any products that can be offered. They are all successful. One of the things I mentioned earlier was the perception that you don’t make money from microfinance-type enterprises, and I think we need to do more research. There is a company in Mexico called Compartamos Banco. This was once an NGO. It did microfinance, it was a microfinance institution, starting out as an NGO. It actually became a commercial bank and it’s now listed and it did an IPO recently, and it’s one of the listed commercial banks competing with the equivalent of your FNB and Standard Bank in Mexico. I’m saying that there is a market for this. You can make money. But the intent is not just profit, but a social objective of ensuring that there is increased access to financial products for the poor, for people who don’t have collateral, who don’t have assets, and who are not necessarily [clients of] your typical banks as less risky-type clients.

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