How to reach the unreached through financial inclusion financial - - PowerPoint PPT Presentation

How to reach the unreached through financial inclusion

Making financial markets work for the poor

financial inclusion

June 2013

FinMark Trust Dr Prega Ramsamy

• Independent trust formed in April 2002
• Initial and core funding from the UKAid
• Mission: “Making Financial Markets Work for the Poor”
• Aim: Facilitating and catalysing development around access to financial services
• How: move beyond data production, with an increased focus on being a catalyst to systemic change in

financial inclusion by providing support to transformation at a country level

About FinMark Trust and its Focus Areas

Focus Areas

Making financial markets work for the poor

Focus Areas

Information & Research Support Consumer Financial Empowerment Financial Policy and Regulation Housing Finance Regional Finance Integration Retail Payment Systems Micro- insurance Agricultural/Rural Finance 2

Promoting financial markets which work for the poor

Umax -100% Ua2 Access frontier future Supra – market zone t usage

Policies to promote pro-poor financial sector development must start with analysis of the current levels of trajectory of usage in a particular market. Next, the position of the current access frontier must be determined, together with its likely movement in the short to medium term. As shown below there are three zones of policy making, depending on where the current level of usage and the market trajectory is relative to the access frontier.

Making financial markets work for the poor

3

Ua1 Un Now T2 Time Access frontier now T1 % market u communication Zone 1

• Market enabling policies:

Policies which move usage from current levels up to the current access frontier (Un to Ua1): e.g. communication Zone 2

• Market development policies:

Policies which push the access frontier outwards over time to position 2 (Ua1 to Ua2). e.g. product design and packaging as well as access Zone 3

• Market redistribution policies:

Policies for serving those unable to participate now or in the foreseeable future in the market (Ua2 to Umax) due to lack of

• income. Promote employment,

cash transfer like SASSA card in South Africa

• The FinScope survey is a research tool, integrating demand-side and supply-side information
• The demand-side component is a representative survey
• The supply-side component provides information on service points and financial products available
• The FinScope tool is a nationally representative survey on how individuals, aged above 16/18 years, source

their incomes and how they manage their financial lives

• Provides insight into attitudes and perceptions regarding financial products and services

FinScope surveys and their Objectives

Objectives

• To measure the levels of financial inclusion (i.e.

Objectives

Consumer Surveys SMME Surveys

Making financial markets work for the poor

• To measure the levels of financial inclusion (i.e.

the proportion of the population using financial products and services – both formal and informal)

• To describe the landscape of access (i.e. the type
• f products and services used by financially

included individuals)

• To identify the drivers of, and barriers to the

usage of financial products and services

• To stimulate evidence-based dialogue that will

ultimately lead to effective public and private sector interventions that will increase and deepen financial inclusion strategies. Objectives

• To assess the size and scope of small, medium and micro

enterprises (SMME)

• To describe the levels and landscape of access to

financial products and services (both formal and informal)

• To identify the most binding constraints to SMME’s

development and growth with a focus on access to financial markets

• To identify and describe different market segments with

specific development needs in order to stimulate segment related innovation

• To propose recommendations regarding financial

assistance to MSMEs and financial policies

4

FinScope Surveys as Catalytic Tools

Research FinScope research looks at areas around financial inclusion (esp. usage of financial services and products ) and the data is widely used by other researchers and institutions FinScope surveys create wealth of information

2 FinScope surveys namely: FinScope Consumer and Small Business Surveys

Information sharing Dialogue and advocacy Professional development FinScope surveys create wealth of information which is shared with different stakeholders and policy makers in the countries the surveys are done FinScope surveys strongly encourage dialogue and advocacy through knowledge sharing and debate FinScope surveys encourage professional development through use the of FinScope data and also dialogue and debate resulting in market expansion and more financial inclusion

• f the broader population

5

The FinScope approach: Summary

DATA CAPTURE, FIELDWORK – QUALITY CONTROL EA MAP SAMPLING, FIELD PREPARATION FOCUS GROUPS PILOT/REVISE QUESTIONNAIRE QUESTIONNAIRE DEVELOPMENT SCOPE MARKET- NEEDS AND CAPACITY DEFINE STRATEGY AND METHOD CONTRACT & TRAIN RESOURCES

6

FEEDBACK CYCLE PRESENTATION AND PACKAGING DATA CAPTURE, WEIGHTING, ANALYSIS QUALITY/ INTEGRITY/ COST EFFECTIVE/ RELEVANT/ INSIGHTFUL Consultants Academics Service Providers Market Research Policymakers CHANGING THE FACE OF FINANCIAL SYSTEMS SUPPORT USERS IN ANALYSIS AND INTERPRETATION

Donors

First cycle:

• Pakistan
• Malawi
• Mozambique
• Ghana
• Lesotho
• Swaziland
• Zimbabwe

FinScope Footprint

Currently underway:

• Thailand
• Myanmar

Planned for 2013:

• Angola
• India
• Zimbabwe
• India
• DRC
• Repeat

Mozambique SMME:

• South Africa
• Zambia
• Malawi
• Tanzania
• Zimbabwe
• Mozambique

Repeat cycle:

• South Africa
• Zambia
• Tanzania
• Botswana
• Kenya
• Uganda
• Nigeria
• Namibia
• Rwanda

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Promoting financial markets which work for the poor

Umax -100% Ua2 Access frontier future Supra – market zone t usage

Policies to promote pro-poor financial sector development must start with analysis of the current levels of trajectory of usage in a particular

• market. Next, the position of the current access frontier must be determined, together with its likely movement in the short to medium
• term. As shown below there are three zones of policy making, depending on where the current level of usage and the market trajectory is

relative to the access frontier.

8

Ua1 Un Now T2 Time Access frontier now T1 % market u Zone 1

• Market enabling policies:

Policies which move usage from current levels up to the current access frontier (Un to Ua1): e.g. communication Zone 2

• Market development policies: Policies

which push the access frontier outwards

• ver time to position 2 (Ua1 to Ua2). e.g.

product design and packaging as well as access Zone 3

• Market redistribution policies:

Policies for serving those unable to participate now or in the foreseeable future in the market (Ua2 to Umax) due to lack of income. Promote employment, cash transfer like SASSA card in South Africa

Lessons from South Africa: Summary of household factors in South Africa

TOTAL adults in SA (2012 results)

33.7

million

No tap water No toilet No electricity

4% 4% 10%

Impoverished pockets

9

LSM 1-2 in SA (adults)

1.2

million

LSM 3-4 in SA (adults)

No tap water No toilet No electricity

6

million

23% 27% 88%

No tap water No toilet No electricity

14% 11% 30%

Impoverished pockets

What drives banking in South Africa?

19 99

Credit/loan products Transaction products

%

2012 results

10

11 12 12 17

Remittance products Insurance products Funeral products Saving products

Banking Summary in South Africa

?

say having a bank account only makes sense if money is received regularly and reliably say it is too complicated to

• pen a bank

account.

$$$

say that banking fees are too expensive.

61% 39% 34% 12% 30% 47%

2012 results

11

• wn an ATM or

debit card claim have a savings

• r money market

account.

R3000

banked people withdraw all their money in one go

61% 39% 34%

banked people prefer using bank cards instead of cash to buy things.

54% 25%

banked get cash at store till using a card at least

• nce a month.

83%

registered on new SASSA system agreed with the statement that the cheapest way to withdraw money from a shop till is using the new SASSA MasterCard.

Across people registered on new SASSA system, 87% said they like it.

Comparing Access Strand in Africa where Consumer FinScope surveys were conducted

34 38 41 44 62 67 7 23 18 6 3 6 15 20 8 13 4 8 44 19 33 37 31 19 Ghana 2010 Lesotho 2011 Botswana 2009 Swaziland 2011 Namibia 2011 South Africa 2012

12

12 12 14 19 21 23 23 24 30 34 1 4 9 7 7 19 18 14 6 7 9 28 14 19 42 30 26 22 17 15 78 56 63 55 30 28 33 40 47 44 Mozambique 2009 Tanzania 2009 Zambia 2009 Malawi 2008 Uganda 2010 Rwanda 2012 Kenya 2009 Zimbabwe 2011 Nigeria 2010 Ghana 2010 Banked Non-bank formal Informal only Financially excluded

Access strand of financial services

67 63 63 6 5 5 8 5 9 19 27 23 2012 2011 2010 Financially served (80%) Formally served (73%) Informally served (8%) Financially excluded 63 60 63 60 51 47 5 4 3 4 7 8 9 10 11 11 9 8 23 26 24 25 33 37 2010 2009 2008 2007 2006 2005 Banked Formally served Informally served Not served

The overall levels of financial inclusion increased since 2005, in 2012, 81% of South African adults were financially included compared to 73% in 2011, 77% in 2010, 75% in 2007, 67% in 2006 and 63% in 2005.

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Access strand of gender and LSM

64 64 69 5 4 7 8 4 8 23 28 16 2012 2011 2012

Banked Formal other (non- bank products) Informally served

• nly

Not served

Male Female

14

61 6 7 26 2011 51 8 11 30 2012

LSM 1-5

LSM: Living Standard Measure

Access strand based on source of income

100 89 84 2 6 3 6 5 4 Work pension Salaries or wages from a job Money from own business Banked Formal other (non- 2012 results

15

75 56 50 18 5 9 4 5 9 9 14 4 10 25 32 63 Government grants* Money from others Piece jobs Do not get money Formal other (non- bank products) Informally served

• nly

Not served

* Government grants include Child grants; Disability grants and Government old age pensions

The Savings Strand

11 11 11 13 6 4 5 6 67 66 2012 2011

Banked Formal other (non-bank products) Informally served only

16

11 10 13 14 4 6 6 5 66 65 2011 2010

Saving at home Not served

Personal obstacles to saving

claim they have enough money to save after covering all spending needs worried won’t have enough money for old age

• r retirement
• f people do not
• wn a retirement,

pension or

25% 83% 48%

2012 results

17 pension or provident product

83%

Those without savings skew to unbanked and under 30 years old 4 in 5 of those who had cancelled a savings product said could no longer afford – skew 30-44 years, low education and low income Those who cancelled savings products due to recession skew R8 000+ income

The Credit Strand

13 14 13 10 3 4 7 11 65 61 2012 2011

Banked Formal other (non-bank products) Informally served only Family and friends

18

13 5 12 19 2 2 6 7 67 67 2010 2009

Family and friends Not served

Actual borrowing behaviour

What people borrowed for - in the past 12 months, excluding many long-term liabilities (Top 3)

Drivers of borrowing

Borrowing needs

What people would borrow money for (Top 3) To start

• wn

For an emergency Food (32%, 50% LSM 1-5) Mainly from informal sources

2012 results

Related to largest household expenses, i.e. food and bills

• wn

business (29%) emergency (27%) To buy a house (26%) Mainly from informal sources

(including friends and family)

Bills (19%) Give to a family member (9%)

19

The Insurance Strand

8 10 22 24 17 9 53 57 2012 2011

Banked Formal other (non-bank products) Informally served only

20

13 27 10 50 2010

Informally served only Not served

PERSONAS | FRAMEWORK

Through cluster analysis of participants placed along the 4 axes of the persona framework, we identified 6 personas, representing 6 unique personalities with different financial behaviors and attitudes. Collectively, these 6 personas span the full range of behaviors and attitudes defined by the 4 axes. The 6 personas are: 1. Angela, the aspiring student financial discipline financial horizon risk tolerance

FINMARK TRUST + FROG | THE PERSONALITIES OF THE UNDERBANKED

2

1. Angela, the aspiring student 2. Lucien, the family man 3. Natalie, the survivor 4. Matome, the driven businessman 5. Rolphy, the struggling entrepreneur 6. Patrick & Meiki, comfortable elders trust in formal institutions

Patrick & Meiki, comfortable elders Angela, the aspiring student Lucien, the family man Natalie, the survivor Matome, the driven businessman Rolphy, the struggling entrepreneur

PERSONAS | NATALIE, THE SURVIVOR

:

Natalie, the survivor

41 years old Part-time cleaner Ga-Mashashane, living with her family Single mother/grandmother

PERSONA 3

FINMARK TRUST + FROG | THE PERSONALITIES OF THE UNDERBANKED

2

Often living with small incomes and SASSA social grants, survivors struggle with their finances on a daily basis. A lack of transparency into financial products and the pressure to make ends meet forces many of them into repeated cycles of debt.

1200 1200 400 200 150100 60

MONTHLY PERSONAL INCOME

Clothes Others

R3,000

self-made and grants

Loan repayment Groceries Transport Airtime

MONTHLY EXPENSES SPENDING PATTERNS

MONTHLY SPEND (Rand)

PERSONAS | NATALIE, THE SURVIVOR

Grocery bulk purchase Grocery bulk purchase and loan Electricity Loan shark repayment

FINMARK TRUST + FROG | THE PERSONALITIES OF THE UNDERBANKED

2

R3,500 KEY ASSETS

7 14 21 28

Television Nokia feature phone Stereo Microwave Refrigerator

DAILY SPEND bulk purchase and loan repayment

KEY INSURANCE NEED Lower costs of entry for funeral coverage All burial societies in her neighborhood demand a minimum contribution of R50/month which Natalie cannot

• afford. She would not mind if fewer

items are covered for a lower

• contribution. She feels even light,

partial coverage is better than nothing.

She wants to enroll in a local burial society, but can’t afford the monthly

• payment. She contributes

R10 towards funerals happening in her community in the hope that people will do the same for her.

KEY SAVINGS NEED Better mechanisms to force short- term savings through income troughs Despite having three accounts, Natalie can barely maintain savings in any of

• them. She will withdraw and spend it

all as long as there is money, even if she knows that saving a little would be more beneficial to bulk purchasing for her family.

Natalie has 3 bank accounts – one for her payroll account and two for loans. She also has a SASSA card through which she receives R1,500 monthly.

PERSONAS | NATALIE, THE SURVIVOR

FINMARK TRUST + FROG | THE PERSONALITIES OF THE UNDERBANKED

2

KEY PAYMENTS NEED None

Natalie is not using any payment or remittance services. She currently has 3 loans from 3 institutions – for R14,000, R7,000, and R5,000. She is also borrowing R400 from a loan shark at 40% interest. She will borrow R300 from her friend too regularly, with no interest.

KEY CREDIT NEED Greater confidence and better planning to assist in escaping from the debt cycle Poor financial planning and the daily pressure to make ends meet has forced Natalie into a painful repeated debt cycle – using one loan to cover others. She feels so trapped in this cycle that she has no idea how to start trying to escape.

What stands out in 2012 for South Africa?

Better use of existing infrastructure and touch points to reach people – Accessibility to impoverished pockets Highly dependent young population Challenges to deepening financial engagement

25

points to reach people – e.g. stokvel, burial societies, churches, post

• ffice, retail to extend

appropriate products and mechanisms to consumers Formal and informal channels co-exist and play different roles in people’s lives Focus on innovation in servicing under-banked and the unbanked

No electricity

impoverished pockets remains a challenge

What has changed since 2004 in South Africa?

46% 15% 20% 67% 26% 28% 12% 13% 2004 % 2012 %

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5% 15% 20% 6% 6% 9% 7% 11% 8% 9% 10% 12% 11% 13%

Banked 13m → 22.5m Formal funeral cover 4.2m → 8.7m Burial society membership 6m → 9.5m

Stokvel, savings

• r investment

club membership

2.1m → 3.6m Retirement annuity 2.1m → 3.1m Provident fund 1.8m → 3.5m Pension fund 2.7m → 4m Life insurance 3.2m → 3.9m 1.5m → 2.6m Credit card

Another 3% of adults in South Africa claim to have life insurance through someone else

What has changed since 2004 in South Africa? (Contd.)

18% 18% 2004 % 2012 %

27

10% 4% 5% 7% 18% 2% 10% 4% 5% 7% 18% 3%

Medical aid 3m → 2.8m Disability insurance 1.3m → 1.5m Household contents insurance 1.7m → 1.6m Vehicle insurance 2.1m → 2.3m Store card 5.1m → 6m Personal loan from bank 0.5m → 1.1m

Another 2% of adults in South Africa claim to have medical aid through someone else as do another 2% for household contents insurance and the same for vehicle insurance

What stands out in 2012 for South Africa?

Better use of existing infrastructure and touch points to reach people – Accessibility to impoverished pockets Highly dependent young population Challenges to deepening financial engagement

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points to reach people – e.g. stokvel, burial, churches, post office, retail to extend appropriate products and mechanisms to consumers Formal and informal channels coexist and play different roles in people’s lives Focus on innovation in servicing under-banked and the unbanked

No electricity

impoverished pockets remains a challenge

Size and scope of the MSME sector in Zimbabwe

Owning Estimated

5,7 million people

29

2,8 million MSME

• wners

Employing 2,9 million people

(excluding MSME owners)

Owning 3,5 million MSMEs Estimated turnover

(2012)

US$ 7,4 billion

(65% of MSME owners reported on turnover)

5,7 million people

2 million individual entrepreneurs 800 000 business

• wners with

employees 71% 29%

Important contribution to employment

Overview

1% 4% 24%

Percentage of MSME owners

2 4 6 10 5 employees 3 employees 2 employees 1 employee

Micro businesses

30

71%

1% Medium (30/40-75 employees) = 19 000 4% Small (6-30/40 employees) = 108 000 24% Micro (1-5 employees) = 672 000 71% Individual entrepreneurs (0 employees) = 2 016 000 2 2 4 employees 5 employees

Total business owner (BO) population 100% (2,8 million) Financially included 57% (1,6 million) Financially excluded 43% ( 1,2 million)

Financial inclusion among MSME owners in Zimbabwe

14 18 Banked Formally served Formally served 18% (504 000) Informally served 50% (1,4 million)

Driven by informal savings

Banked 14% (392 000)

Driven by cash transactions and savings

Served by other formal financial institutions 7% (196 000)

Driven by insurance

31 43 50 7 Excluded Informal Other formal

Country comparison

14 4 39 43 Zimbabwe (2012)

Access Strand

Included 57%

32

47 22 4 9 7 10 42 59 South Africa (2010) Malawi (2012) Banked Other formal Informal only Excluded 58% 41%

Included: 76-100% 51-75% 26-50% 0-25%

If properly planned and well coordinated, markets can work for the poor. For the markets to work for the poor the following need to be considered: Create an enabling environment that reduces transaction costs between buyers and sellers to the minimum

Summary: Making Markets Work

Create institutional foundation which comprise the laws, rules, regulations, and, indeed, regulatory enforcement capacity to establish and sustain the market Encourage innovativeness in product offering Support organisations that provide intermediate services to market players and regulators Educate the consumers on different initiatives that promote financial inclusion

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Thank you

Making financial markets work for the poor

pregar@finmark.org.za www.finmark.org.za