Towards a Financial Inclusion Strategy

Context and Need for a Financial Inclusion

Financial Inclusion remains a huge challenge facing South Africa. To put Financial Inclusion in context, in South Africa, 12 million people or 23.5% of the population are considered as financially excluded with 9% informally served. It is also estimated that approximately R12 billion is kept "under mattresses". Financial Inclusion aims to provide the "unbanked" with access to the formal financial system and services such as; savings, payments, transfers, credit and insurance. A growing body of theoretical and empirical evidence suggests that financial sector development that focuses on Financial Inclusion promotes pro-poor growth and poverty alleviation.

Financial Inclusion ensures sustainable access to, and use of, appropriate financial services. The Financial Inclusion framework considers demand-side (consumers) and supply-side (financial sector providers) factors that ultimately affect the inclusions/exclusion of individuals. The Financial Inclusion policy aims to ensure users and financial service providers are included in the formal sector and have incentives to actively do so.

Making Finance Work for Africa (MFW4A) of the African Development Fund identifies informal finance, micro-finance, mobile banking and SME financing as aspects that affect access to finance. However, to achieve successful delivery of Financial Inclusion, where the policy and regulatory framework is proportionate with the risk and benefits, the banking industry must work closely with National Treasury.

Key Dimensions of Financial Inclusion

Consultative Group to Assist the Poor (CGAP) promotes a holistic approach to Financial Inclusion that includes responsible finance and stability to successfully address unbanked individuals and businesses. This includes several key dimensions that relate to products, features and channels. The Alliance for Financial Inclusion Data Working Group’s indicator framework outlines access, usage and quality as dimensions to evaluate Financial Inclusion. In addition, measures of inequality, remittances and micro-insurance need to be added to provide a complete picture and design appropriate policy.

Global/Regional/National Agenda

With the political momentum around the issue, Financial Inclusion has risen to prominence on a national, regional and global agenda.

Nationally, the South African Reserve Bank (SARB) facilitates Financial Inclusion with the help of National Treasury. On 23 February 2012, National Treasury published "A Safer Financial Sector to Serve South Africa Better" policy position, which proposes a modified "twin-peaks" model to promote and industry response to Financial Inclusion and other objectives.

With the exception of South Africa, Botswana, Cape Verde, Swaziland and Mauritius, all financial regulators in Sub-Saharan Africa have Financial Inclusion strategies. These strategies are country-specific and based on local conditions and idiosyncrasies in each financial sector.

Globally, Financial Inclusion is high on the G-20’s development agenda.

Critical Success Factors for Financial Inclusion

The Alliance for Financial Inclusion (AFI) identified Kenya, Philippines, Peru and Brazil as champions of Financial Inclusion. According to AFI, successful Financial Inclusion policy innovators need a vision,broad-based government commitment (backing of central banks and regulators), and building on success and the "Financial Inclusion breakthrough point".

Window of Opportunity

Financial Inclusion provides the banking industry with a window of opportunity to:

  • Promote financial sector-wide stakeholder debate about accessible and affordable services from diverse service providers
  • Shift from supply-side only to include a balanced focus on demand-side elements
  • Change the industry mindset from deliverable imposed to business opportunity offered, thereby promoting competition and market-based incentives for sustainable financial access
  • Develop a framework that captures the “Bottom-of-the-Pyramid” (BOP) market and fosters cross-sectoral partnerships and collaborations
  • Influence and shape debate on a national and international level
  • Evaluate, determine and understand the elasticity when downscaling (a strategy to provide financial services to low-income consumers/entrepreneurs).

The Kenya study tour proved that down-scaling is not necessarily elastic.

Growing evidence suggests financial sector development has a knock-on effect that promotes pro-poor growth and reduces inequality, by mobilising savings and investing in productive growth and reducing costs associated with information, contracting and transactions, which contribute to high growth and lower poverty.


Vision is the ability to think about or plan the future with imagination and wisdom. It is a mental image of what the future will or could be like. For a framework to shift paradigms, a new Financial Inclusion vision is required and global financial sectors are mobilising to create new visions. In January 2011, "Big Society" published "Banking on a New Vision", an article calling for a new vision for the UK financial services sector and quoting Einstein: "We cannot solve problems by using the same kind of thinking we used to create them"… A new vision requires a fresh approach, and the financial crisis is the catalyst needed for a rethink of the Financial Inclusion agenda within the South African banking industry Vision.

Nine Principles of Financial Inclusion

G-20 Financial Inclusion Experts Group at the November 2010, Seoul Summit, agreed on Nine Principles of Innovative Financial Inclusion:

  1. Leadership
  2. Diversity
  3. Innovation
  4. Protection
  5. Empowerment
  6. Co-operation
  7. Knowledge
  8. Proportionality
  9. Framework

New Global Economy to Rely on Financial Inclusion

Globalisation is generating change that requires a standardised global inclusive banking charter with room for national variation and evolving national priorities. For survival and self-preservation, banks must help evolve the regulatory system or run the risk of imposed regulation. After all, "global inclusive banking is part and parcel of what banking is supposed to do" (David A. Smith in Community Development Investment Review: "CRA Goes Global…")

The Chairman and CEO of Visa Inc., Joseph W. Saunders in "A New Global Economy Must Rely on Financial Inclusion" of 23 September 2009, says the global economy is asymmetrical because half the world’s population do not have access to basic financial services. Although more prevalent in the developing world, even in the United States, 28 million people are "unbanked". Eighty percent (80%) of the sub-Saharan Africa population and 410 million people in India are "unbanked". For Financial Inclusion to be effective, financial literacy needs to be a core aspect.

G-20 Financial Inclusion Experts Group says a concrete Financial Inclusion Action Plan must be developed, with Global Partnership for Financial Inclusion (GPFI) participation from all sectors of the economy, and Financial Inclusion must be embedded as a key pillar of the development agenda.

Indonesia Central Bank’s 4-pronged strategy includes financial eligibility, proportional supportive regulation, facilitation and financial education, supported by basic infrastructure such as a legal system and credit bureaus. Consumer protection is a core component of demand side Financial Inclusion and stability, and financial education. Providing "No Frills" savings accounts, building a culture of saving and responsible micro-credit are core components of supply side Financial Inclusion.

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