Transcript Mass Banking and the Micro-financing Industry in SA`s

Mass Banking and the
Micro-financing Industry
in SA’s Second Economy
Lumkile Mondi
Chief Economist
Industrial Development Corporation of SA
Making Finance Work for Africa
7-9 May 2007
Zambezi Sun Hotel, Livingstone,
Zambia
Background
• ASGI-SA is an attempt at bridging SA’s “twoeconomies” divide.
• 13 million South African adults do not have access
to basic banking transaction facilities.
• Overcoming the two-economies divide requires vast
resources and the creation of micro-financing
institutions (MFIs).
• Micro-financing is the supply of loans, savings,
money transfers, insurance, and other financial
services to low-income people for their livelihood
and their micro-enterprises.
The Financial Services Charter
PERCENTAGE OF LSM 1-5 WITH EFFECTIVE ACCESS TO
Transaction accounts
Bank savings products
Life assurance products
Collective investment savings products
Short term risk insurance products
2008 ACCESS TARGET
2003 ACTUAL USAGE
80%
32%
80%
28
A percentage to be defined
5%
1% plus 250 000
Negligible
6%
Negligible
• The Sector through the Charter is to increase
access (effective access) to transaction banking to
80% of the LSM 1-5 population;
• Effective access means access to full banking
facilities within 20 kilometers of client location;
• The Sector is also to increase targeted lending to
SMMEs, agricultural enterprises, development
infrastructure and low – cost housing.
The National Credit Act 34 - 2005
• Caters for consumers and credit providers;
• Became effective from 1 June, 2006;
• It provides for the National Credit Regulator and the National
Consumer Tribunal to monitor and enforce its application;
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Protection of consumers:
Debt Counsellors;
Over-indebtedness and reckless lending;
Prices of cash versus credit sales;
Interest rates and other charges are capped;
SA’s micro-financing industry
• SA’s credit industry estimated to
total R362 billion.
Micro-lending industry:
Pyramid of SA financial
institutions
• 1 800 businesses, including 9
banks, operating out of 8000
branches and employing circa
25 000 people.
Commercial
Banks
Middle
class
• Totalling an estimated R17
billion, the micro-lending
industry represents 5% of the
overall credit industry.
• About 83 000 business loans
totalling R190 million are
provided yearly by NGOs.
• 272 000 micro-consumer loans,
valued at R510 million, are
issued by “for profit” lenders
and utilised by households for
business purposes.
• The informal savings market is
estimated at R15 billion
annually.
Commercial
Micro-loans
industry
Salaried working class and
self employed
(small business)
Economically Active Poor
(Micro Enterprise)
Very Poor (Survivalist Enterprise)
The ‘Hard Core’ Poor and Destitute
Existing state
agencies
(Khula,
Umsobomvu)
Credit
Unions
Cooperatives
The first economy
The second economy
Developmental
Micro-Finance
Organisations
(NGOs)
Very few SA MFIs reach the very
poor, or seek to do so as a matter of
policy.
SA micro-financing industry players
• Commercial banking sector
• Non-banking MFIs (e.g. Micro-Finance Regulatory
Council, Small Enterprise Foundation, Khula
Enterprise Finance, Beehive Entrepreneurial
Development Centre, FINCA, Marang Financial
Services)
• Savings and credit/financial services co-operatives
(e.g. Savings and Credit Cooperative League of SA
– SACCOL)
• Savings and credit networks (e.g. SA Homeless
People’s Federation)
• Hybrids (e.g. Kuyasa Fund, Teba Bank, Postbank,
SEDA, SAMAF)
The SA Micro-Finance Apex Fund (SAMAF)
• The establishment of the South African Micro-finance
Apex Fund (SAMAF), was based in part on the stated
challenges in the industry.
• SAMAF, commonly referred to as “the Apex Fund”, has
been operational since May 2005 as an autonomous
institution operationally independent from
Government.
• SAMAF may be seen as the core initiative of the SA
Government to support and promote the growth of the
micro-financing industry.
• SAMAF aims to address poverty alleviation and to
provide sustained, affordable access to financial
services for the poor.
• It now has pro-poor micro-financing partner
institutions in all nine provinces.
ABSA – A case study
• South Africa’s largest retail bank;
• Capitalised on the JSE at R80 billion; made R5.5 billion
in headline earnings as at 31 March 2005;
• A co – signatory to the Financial Services Charter;
• Usage of bank accounts among poorer people (LSM 1-5)
stands at 32%, committed to ensuring that 80% have
effective access to bank accounts by 2008;
• ABSA has FlexiSelect a unique product that now
gives people earning as little as R2 000 per month access
to a range of banking facilities, including investment and
savings products, overdrafts, small loans, housing loans,
vehicle finance, credit cards, wills and a range of insurance
products
Industry products and services
• Transaction banking;
• Money Transfer Facilities;
• Micro – Credit Financing;
• Micro – Savings;
• ROSCAS; - These are Rotating Savings and Credit
Associations also known as Stokvels. There are
about 2.3 million stokvel members out a total adult
population of roughly 29 million. An estimated R5
billion flows through stokvels every year
• Burial Societies; and
• Retail savings Bonds.
Challenges facing SA’s micro-finance industry
• A lack of skilled and experienced staff for MFIs at the
start-up stage.
• Rapid labour turnover and limited resources for capacity
development.
• SA’s micro-credit MFIs have the highest ‘salary burden’
in the world.
• Structural obstacles to micro-enterprises, as well as
obstacles to productivity in micro-credit delivery.
• A challenge in the NGO sector is the extent of donor or
subsidy dependence.
• The dual problem of high interest rates and high
administration costs of lending out SMME and other
loans.
SA micro-finance industry risks
• Unsecured loans to clients are by their very nature risky,
and there is a need to develop a culture of trust within
communities.
• Social intermediation methodologies (SIMs) may not work in
where mistrust within communities is pervasive.
• Lack of skilled professionals for the micro-finance industry.
• High illiteracy levels play a significant role in limiting the
growth of the micro-finance industry.
• High salaries demanded by micro-finance professions inhibit
institutional sustainability.
• High crime levels mean that rural populations remain
vulnerable and MFI operational costs are negatively
impacted.
• Poor infrastructure (e.g. road networks and communication
facilities) in rural areas hinders industry outreach both in
terms of breadth and depth.
Socio-economic development impact
Some of the developmental returns to
be realised from involvement in the
micro-financing industry:
• Elevating the standard of living of
people in rural areas, townships, as
well as semi-informal and informal
settlements.
• Raising disposable incomes, which
leads to higher effective demand in
the economy and accelerated
economic growth.
• Increasing demand for goods and
services from the SMME sector,
which will translate into growth
opportunities within the sector
itself and supplier industries.
• Employment creation.
• Poverty alleviation.
IDC strategic orientation
• Main emphasis of Transport, Financial Services
& Other SBU is to address the issue of access to
business-oriented financial services by
unbanked entrepreneurs and second economy
participants.
• Current strategy includes mainly acquisitiontype transactions in financial services arena.
• Future strategy to include provision of
business-oriented financial services to
unbanked emerging entrepreneurs in the
LSM 1-5 band.
• Focus on the provision of financing mainly for
entrepreneurial purposes in conjunction with
or via established institutions in the
financing/banking arena.
The IDC’s African portfolio (outside SA)
• Over 85 projects under
implementation or consideration in
26 African countries (excl. SA)
• more than 40 purely export finance
applications approved or under
consideration
• Around US$1.3 billion approved todate for African projects (outside
SA)
IDC Portfolio on the African continent
Country Perspective
Mozambique
Approved
Value in US$ million
785
Nigeria
69
DRC
70
Swaziland
56
Zambia
54
Ghana
53
Algeria
39
Lesotho
31
Mauritius
16
Namibia
Total
5
1 177
Thank you
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[email protected]
Tel: +27112693682
www.idc.co.za