The SA government’s view of financial inclusion and microfinance

The SA government’s view of financial inclusion and microfinance

I thank you for the invitation to the Ministry to address issues of micro-finance with you at this important gathering. As the government of South Africa, we recognize that one of the key impediments in the SA economy is affordable access to finance by the poor and un-banked communities, especially in rural and peri-urban areas.

In South Africa and yes throughout Africa and the world, women and children are more vulnerable to poverty. Black women also form the largest part of South Africa’s unemployed persons, and rural women in particular find themselves at the bottom of the economic pyramid.

Evidence indicates that women, when given access to micro finance and credit are able to make better use of it than any other group. Because of the increasing responsibility of women in heading up households, micro finance programmes that target female clients will not only benefit individual clients, but will benefit households as a whole. In this regard, therefore, we see micro finance as an important tool for the economic empowerment of women.

In this regard, we see micro finance as an anti-poverty tool to stimulate and activate development at a local level by providing households, who are usually excluded from the banking sector, with access to financial services. In so doing this has the potential to create employment, increase incomes and expand economic opportunities.

Programme Director, as government we have a moral and social obligation as well as a constitutional imperative to address this issue. In addressing this issue we need to consider that firstly, an increasing reliance on social welfare measures is not sustainable for obvious reasons.

Importantly, we need to consider that through a reduction in our levels of inequality we will be able to achieve higher levels of economic growth for our country, however, high levels of inequality and poverty can result in social instability and an increase in the levels of crime which will discourage investment in the country.

Moreover, our country will not be able to achieve its full potential if we rely on just a small section of our population for production, business activity, skills, taxes and the bulk of consumption.

It is a well known fact that it is essential that government creates suitable legislative and regulatory environments that support development. The operating environment must allow for a wide variety of financial products that adequately meet the needs of the population including the rural and poor. This environment must be suitable for the promotion of sustainable institutions whilst the rights of the consumer are protected.

The implementation of sustainable development financial institutions requires a good understanding of the sector and of the methodology. Experience and specialised training are essential to the successful development of the sector. South Africa in comparison to the rest of the developing world is lagging behind in developing the microfinance sector.

A number of institutions have been formed over the years and only a few of them have survived and a lower number of these have reached sustainability. The demand for the services of these institutions remains high with many areas not having been reached at all.

To this end, Government created the South African Micro-finance Apex Fund (samaf) to amongst other things address poverty reduction as well as provide affordable and appropriate financial services for the poor in a sustainable manner.

This was born out of the realization that after years of its operation, Khula Enterprise Finance interventions and other initiatives in micro-finance, delivering credit to the poor without building capacity to the recipients is counter productive.

Experience and common sense demanded that the country re-looks the current approaches and models for micro-finance to include a developmental approach to micro finance for the poor and destitute in our country, that considers them as both beneficiaries and co- directors of the process, and not just mere consumers.

Samaf was established with a very specific mandate from the government. It had to provide financial services at a cost more affordable than the costs currently charged by micro-finance practitioners. It had to reach the people where they were and extend the services to enterprising poor in peri- urban and rural areas. It must encourage people to save, in that way creating wealth for economic development benefits. Lastly, it should build the capacity of intermediaries who on-lend to the beneficiaries to achieve growth and development in a sustainable manner.

Programme Director: It is a well known fact that a sound financial sector is a function of an integrated and efficient financial system that caters for all financial institutions within the sector. This also applies to microfinance institutions. Unlike other micro financing mechanisms available, samaf will link up with the community based financial services initiatives, strengthen these and build their capacity to deliver their products. To be effective, samaf will have to keep systems simple and appropriate to the environment within which they operate and costs down through community ownership and management.

Ladies and gentlemen let me leave you with this quote by the founder of the Grameen Bank, “I believe that we can create a poverty-free world because poverty is not created by poor people. It has been created and sustained by the economic and social systems that we have designed for ourselves; the institutions and concepts that make up that system; the policies that we pursue.”

I thank you.