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Financial Inclusion: Identifying cost to clients

Damola Owolade, Christian Tipoy and Gerhard CoetzeeCentre for Inclusive Banking in Africa

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Outline

• Dimensions of cost to client• Empirical demand side analysis using FinScope

data 2007, 2008 & 2009 (to assess consistency in results and robustness)– Modelling access to formal financial products in

terms of income, price and non-economic variables given data availability

– Discussion of statistically “meaningful” results• Policy recommendations and conclusions

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Dimensions of cost to client

Enabling environment

- Is there a political will to

increase financial

inclusion?- Enabling

environment

Demand side

Economic

- Price (implicit

& explicit)

- Income

Supply side

Fixed costsVariable costsCompetition

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Descriptors of access used in analysis

• Components of FSM– Physical Access Index– Financial Knowledge & Control Index– Financial Discipline Index– Connectedness and Optimism Index

• Education• Income• Formal Employment• Gender• Age• Race• Provinces• Geographical Area

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2007 2008 2009.0%

10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

100.0%

Formal Products by Gender

FemaleMale

2007 2008 2009.0%

10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

100.0%

Financial Products by Areas

Urban FormalUrban InformalRural FormalTribal Land

Banking Usage

  2007 2008 2009

Currently banked 60.28% 62.65% 59.83%

Previously banked 9.60% 7.52% 8.93%

Never banked 30.13% 29.83% 31.25%

Salient aspects

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2007 2008 2009.0%

10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

100.0%

Formal Products by FSM

Tier 1Tier 2Tier 3Tier 4Tier 5Tier 6Tier 7Tier 8

2007 2008 2009.0%

10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

100.0%

Formal Products by ProvincesWCECNCFSKZNNWGPMPL

2007 2008 2009.0%

10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

100.0%

Formal Products by Em-ployment

Informal emplFormal empl

2007 2008 2009.0%

10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

100.0%

Formal Products by Race

BlackColouredAsianWhite

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Dependent variable: Formally served

2007 2008 2009

PROBIT (dp/dx) PROBIT (dp/dx) PROBIT (dp/dx)

pai -0.4122635*** -0.5475907*** -0.3199213*** fkci -0.0589201*** -0.0510485*** -0.0893585*** fdi -0.0322285*** -0.0403973*** -0.0358795* coi -0.0040021 -0.0379887* -0.0099254

formal_employed 0.0581916*** 0.0621307** 0.0937647*** lessthanR50 per day -0.0413233*** -0.03043** -0.1103761***

Primary_school -0.0096418 0.032838 -0.0047419 High school 0.0528729 0.146054*** 0.0983985

Tertiary 0.059366*** 0.1219516*** 0.1430938*** Male -0.0276086*** -0.0109643** -0.0029046

Agecat1 (16<=age<25) -0.0153212 -0.0360604** -0.0747395*** Agecat3 (35=<age<45) 0.0125241 -0.0097368 -0.0362542 Agecat4 (45<=age<55) 0.0225063 0.0121899 0.0185007 Agecat5 (55<=age<65) 0.0160283 -0.0052212 0.0047003

Agecat6 (age>=65) 0.0237051 0.0287545 0.0488244* Coloured 0.016897 0.0083112 0.010901

Asian 0.0085884 0.0049481 0.0093315 White 0.0641811*** 0.0501531*** 0.1012451***

Urban informal -0.0401103 -0.0183625 0.0389178* Tribal land 0.0014061** -0.0097872 0.0043613

Rural formal 0.0207991 -0.0168241 0.0364957 Western cape 0.0496862 0.0011343 -0.0171179 Eastern cape 0.05887*** 0.015428 -0.0188721 Northern cape 0.0402699*** 0.0359716** 0.0094674

Free state 0.0465002*** -0.0050674 -0.1551143*** KZN 0.0455228*** 0.034224** -0.0157728

North West 0.0551028*** 0.0162942 -0.0264995 Gauteng -0.0287485*** 0.0269223 -0.0256135 Limpopo -0.2941886 -0.0381766 -0.0985106*

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Discussion of results

• PAI, FKCI and FDI will affect the price paid and are consistent over the years

• Education at tertiary level is also consistently relevant over the years

• Formally employed, income, race, age category between 16 and 24

• Variables likely to affect cost to client not empirically proven (supply side factors)– Level of competition– Compliance/Regulatory costs– Enabling environment

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Recommendations

• Livelihood strategies support• Social grants have to be maintained to leverage

livelihoods• Electronic disbursement of social grants – role of

branchless banking• Education and also financial education• The enabling environment for fostering innovation

and technological advancement.• Improved competition• Addressing the “Regulators Dilemma”

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Concluding remarks

• South Africans use more than one financial product at a given time which is often a mix of formal and informal supplied financial products (see also Portfolios)

• More technically, perhaps look into the joint determinants of being served in the formal and the informal financial sectors

• That would help to explain the ebb and flow between banked and unbanked as the economy changes

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Thank you