Financial inclusion, income inequality and poverty in South Africa
Date
2018
Authors
Gabashane, Mpho
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Abstract
Developing countries, like South Africa, have invested in initiatives aimed at improving levels of financial inclusion in order to eliminate poverty and income inequality. This is mainly due to the stylised notion that suggests that financial inclusion improves social and economic development (World Bank, 2006, Chibba, 2009, Beck, Kunt & Honohan, 2015). However, South Africa’s poverty levels remain a concern, and income inequality rising, in spite its impressive achievements in advancing financial inclusion. The purpose of this study to examine the extent to which mechanisms, such as financial inclusion, can be used to reduce poverty and income inequalities in modern day South Africa. To this end, a mixed method strategy was adopted to investigate the appropriate measures to be used in assessing financial inclusion’s effect on South Africa’s poverty and income inequality situation.
South Africa’s governance history was surveyed to determine the nature of its poverty and income inequality and hence its response, or lack thereof, to initiatives such as financial inclusion in their current form. From this, it became evident that the country’s historical discriminatory policies affected the majority’s current ability to move out of poverty. Moreover, the levels of government corruption, and its government’s leadership capabilities are additional contributing factors to the perceived perpetuation of the country’s poverty and inequality. Lack of an enterprising culture and limited access to good quality tertiary education were also identified as other aggravating factors to the country’s persisting poverty and income inequality situation.
The lack of access to finance was not seen as a direct and dominant cause of poverty or income inequality in South Africa. However, it (access to finance) is perceived as a possible significant solution. It was also found that the finance advanced to individuals should be channelled to fund more value adding initiatives and less for consumption. Employment, credit market failures and distance from bank branches were recognised, through compiling the Fuzzy Cognitive Map, as significant contributors which would enable appropriate concepts of financial inclusion to positively affect poverty and income inequality in South Africa.
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Finally, it is recommended that when trying to assess the level of financial inclusion for the reduction of poverty and income inequality in South Africa, there should be a focus on the number of loans afforded to the poor. The number of other financial services products and access points are relevant in the general financial inclusion discussion; however, the number of loans advanced to the poor stands to be a more effective means of reducing poverty and income inequality in South Africa. As such, South Africa’s financial inclusion levels, in as far as its role in reducing poverty and income inequality is concerned, should be based on the number of loans advanced to the poor. It is also important that the use of the loan afforded to the poor should be for value adding usage, such as seed capital for businesses and/or education and not so much for consumption as it is currently.
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Keywords
Microfinance -- South Africa. Credit -- South Africa. Banks and banking -- South Africa. Poor -- Finance, Personal.