Scale of cash economy in SA townships stuns FirstRand

Far bigger than it realised.
Image: Moneyweb

FirstRand has found offering banking to cash-only businesses in South African townships trickier than expected, but the firms involved are also far bigger than it realised.

Africa’s biggest lender by market capitalisation announced the takeover of financial technology firm Selpal in March, with the aim of capturing a greater slice of the township economy.

Millions of people live in townships, which were areas designated for non-whites under apartheid and are often satellites of South Africa’s major cities.

Wealthy residents, golf courses and shopping malls are also now a feature of the country’s most populous township, Soweto, near Johannesburg, as well as a large poorer population living hand-to-mouth in often cramped conditions.

Townships are also home to millions of firms from tiny informal shops to big wholesalers, historically ignored by major banks in South Africa, which make up a sizeable untapped market.

After almost three years, FirstRand has found that the scale of the unbanked businesses is much larger than it thought, Jesse Weinberg, head of the small to medium-sized enterprise (SME) customer segment at FirstRand’s retail division FNB, said.

It has been giving firms Selpal devices and software, which allow customers to pay via card and enable the firms to buy from suppliers, with a view to using the data collected to later offer them financial services such as loans for the first time.

Although it had not met its original goal of capturing 2 500 wholesalers by 2022, Weinberg said FirstRand had surpassed this figure for the total of firms signed on. The bank has also changed its definition of wholesaler and now estimates there are only 20-30 of these in an average township.

It also found far bigger cash-only wholesalers than anticipated, with some achieving turnover as high as R40 million ($2.84 million) a month, Weinberg said, a figure that firms at the higher end of its SME category only do annually.

Even very small township shops typically turn over R2 million a year, he said, although their margins are very thin.

“That would suddenly put that customer into quite a significant bracket, it’s a decent size of business,” he said.

Early lending pilots had also entailed surprises.

One pilot testing a product that worked in a similar to way to trade credit, which allows businesses to pay suppliers for stock or services later, saw some business owners turn it down.

Those that did take part became so nervous about their negative account balance that in some cases they began avoiding interaction with Selpal agents altogether.

“It caused a bit of confusion,” Weinberg said, adding the bank would re-introduce credit pilots at a later stage.


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Firstrand doesn’t care about helping the community. They want to hang these small community shops by giving them loans they can’t afford. Disgusting bank.

At least capitec and discovery bank offer financial education and how to responsibly manage money. This bank is only after their fat cat salaries

But on the other hand Capitec also offers payday loans, and considering their target market for their products that seems predatory.

I am not defending any of the banks, I am waiting for Bank Zero to launch on a large scale so that I can see if they will suit me better.

I disagree Dadape, I have worked for the Firstrand group, there’s a lot of expenditure on customer education by the entire group. Over and above that there’s a decent CSI budget within the Firstrand Foundation that’s targeted at various community upliftment programs

1. With the very thin margins there is little room for cost of credit and associated bank fees
2. The successful businesses like to own their own stock – correct they don’t like negative balances
3. Credit only makes sense to grow businesses. Growth for many cash businesses is limited by little barriers to entry and locality.

My 3 cents.

Agreed, sometimes profit margins shrink when the business grows due to overheads and expenses. Hardly something a thin profit margin can accomodate.

And beside… Let’s assume Mr business owner is living a reasonable life, paying for his family etc.
Maybe he doesn’t want a behemoth to manage with managers, staff and warehouses of stock. His lifestyle has an impact on his decisions too (& so it should).

I suspect that a significant chunk of the “unbanked” do so on purpose, to avoid paying tax.

Good on them!

Ja, lekker. R40 mil a month? Liewe ouers.
So we don’t pay tax, SARS looks the other way, city planners can’t do their job (not that they would anyway) and prepare infrastructure according to the real size of the local economy so they under-estimate services needed.
Then we burn schools, buses and town halls because lack of service delivery…
Pay low rates and taxes per month because there is mos no real value in the area….
We’ll increase the rates in Rosebank and use it for the shortfall…

I think we could interchange the words “unbanked ” with “untaxed”. Many, if not most of these cash operations are happy to remain as such. Unburdened by Bank fees, service levies, SARS oversight, etc.

I think non-cash banking services will be a hard sell in the townships, and rightfully so.

yep – another reason why we should reject the South African “digital rand” or “central bank digital currency”. Cash is the last vestige of freedom from overreach and taxation.

Funny that I’m also really surprised when I get involved in stuff I know nothing about either.

Given the size of the informal economy in SA it’s no wonder that you want to create products & services to capture some fees & associated transactional costs.

“Those that did take part became so nervous about their negative account balance that in some cases they began avoiding interaction with Selpal agents altogether”

If the above is correct then your process needs a tweek or 2.

Cautionary: The longer the cash / informal economy lasts or grows, the more a country spirals downhill.

There is nothing good about cash or informal, especially when they don’t pay tax.

This is what is holding the rest of Africa very much backwards.

What is holding Africa back,is bug taxes we pay,and get looted by the few,those townships are living from hand to mouth and you want to take what is in their hands too,nothing people are benefiting from those vultures called banks

Its also so sickining that banks use loans as an example to assist communities,i still can’t understand that you borrow money fro the bank,the bank add interest which is normal bt ontop they add another amount as loan insurance incase something happens to me before im done paying the loan,but if im done paying the loan “nothing happened”,why can the back pay me back the so called insurance amount,if they really care abt ppl not only fattening their pockets

I won’t say there is nothing good about cash or informal… those business may help families and people survive and stay alive. But I do think that if you are serious about saving for longer term things you will have to hook up with a bank at some point if you can. And everybody has to pay their little fair share of tax. There should be a sense of pride in paying your little bit of tax… your little contribution to the welfare of the country. It would be awesome if the government could spend money better and get rid of corruption but that is the other side of the coin. We need both sides of the coin.

This does not suprise me. I always wondered about our jobless stats and the “lack” of people lying starved next to our roads. Yes there are, but the economy defined as informal is far bigger than one thinks.

This is why SA will be better of following a consumption based, rather than income based, tax regime.

Have 4/5/6 VAT brackets. Witholding tax on Interest and Dividends. Transfer Duties etc. But leave income alone. Tax me when I spend and consume or passively earn. Force my money to look for active business income (not taxed) rather than passive investment income (taxed).

It will catch the informal economy and is much easier to administer.

Makro and the big Cash & Carry operators will effectively become the national tax collectors, making for a smaller SARS too.

Why not JUST a VAT tax?
Ridiculously simple to manage (therefore less tax evasion).
Earn more = buy more = pay more tax. You’re therefore also rewarded for saving.
And a really simple way to zero-rate those goods the poorest among us buy.

Prob is its too easy and transparent and would only require a third of Sars staff.

White Minority Capital is overshadowed by Black Majority Cash.

Red tape and extortive tax laws turn a formal economy into an informal economy, formal jobs into hand labor, job security into exploitation, and transforms the tax base into social grant dependents. Real black entrepreneurs empower themselves in the informal economy while the politically connected parasites empower themselves through BEE legislation in the formal economy. The ANC incentivizes real entrepreneurs to operate under the radar where they pay no company tax, income tax, municipal rates and taxes, CGT, estate duties, and where labor laws, working hours, and minimum wages are irrelevant.

BEE requirements destroy the very economy on which it depends for its existence. BEE beneficiaries are eating their own future. BEE is an economic force that expands the informal economy and shrinks the formal economy.

The laws are intended to coerce the small group of citizens who own a title deed, and who have a residential address, to support government expenditure, while the rest operate as free citizens in a true laissez-faire economy where supply and demand organize all entrepreneurial activity, free of the drag of cheap and destructive socialist ANC dogma.

In short – the people that vote for the ruling regime are not subject to its laws. The ANC leaves its voting base alone and uses its mandated to go after the people who voted against them. (The ones with title deeds and bona-fide business owners)

Pity FNB didn’t refer back to the 1994 surveys the banks did collectively on banking the “unbanked” – in these communities and even extensively in Soweto, Alex, Tembisa etc cash goes into the community and only circulates in the community as they are a cash society – taken FNB more than 25 years to arrive at this conclusion

Every extra bit of regulation applied to formal business competing for the same customers, acts as an incentive for these guys to remain hidden.

That said, it must be really scary managing all that cash, given township crime levels.

Would interested to hear Kietswetter / SARS views on this and the taxi industry’s billion Rand untaxed commercial enterprise.

Maybe tge anc belive that tge 6% PAYE taxpayers are entirely responsible for funding their socialist largess as the comrades practice capitalism and reap it’s benefits without contributing to their overlord’s marxist ideology?

exactly accurate. the people who voted for these policies don’t have to suffer under them. The 6% who vote against the regime must fund the regime it voted against. Simple redistribution of wealth and targeting of ideological opponents.

Years ago, in my previous life, I was involved in a 6 month project in one of the social security funds, before the previously disadvantaged mob got up to speed, to try and ‘bank the un-bankable’ – i.e. how to provide accounts to social benefit recipients and whom the big 4 banks wouldn’t touch. Despite all the creds of the ex MK guy proposing the system, the banks wouldn’t budge. The mooted Postbank fell down thanks to Treasury and again the big banks. Net1 Applitec or whatever it was called in those days, were making moves on metering the taxis and providing other facilities and cheap banking through Postbank or one of the others. Until the taxi drivers discovered how screwed they would be and scuttled the project. The taxi bosses also figured their form of control was better than SARS with technology. The addition of exorbitant funeral policies and other odds and the over-exuberance of raw capitalism helped sink it further. Various other things, which are now history happened.
And the informal sector remains out of the loop – illegal power connections, cash economies in informal settings, daily / weekly informal credit arrangements, collection of ‘uncontrolled’ earnings by taxi bosses, syndicates supplying produce off the back of bakkies, the sale of single cigarettes and ‘nips’ of alcohol at taxi ranks and bus stops, no formal banking involvement, tough policing and judicial systems for ‘non-compliance’ and a host of other things.
FirstRand must have been screwed cripple for this 3 year- long project. 6 months would have done it – but probably a host of MBA’s hi-jacked the thing. The informal sector needs free banking and free data. Tell that to the clowns in the mobile space. The add on’s come later – and non-exorbitant – not if you want to earn a million a month instead of doing the hard and long work and math like Capitec – you will always be a second rate bank catering for the million a month crowd. Who in the townships have ever heard of FirstRand – they are more interested in the hundreds of fifty cent transactions every day where no grubby little hands in Sandton devour them. Unpaved roads and daily gunfire and immense fortitude – much more than the senior management of FirstRand will ever experience. Stay away and don’t screw it. Just give them free and technology, honest guys on bikes to advise and collect and FREE DATA. Read up what’s happening elsewhere. Repeat 6 months here and a bit of reading about informal tading in India, the rest of Africa and elsewhere – saved a lot of time.

I’m actually quite pleased to hear a lot of these SMEs don’t want credit.

They’ve made it work for a long time using cash – why go and throw a fat % into a bank’s hands… When they’re not really doing anything to help you!

End of comments.




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