Financial inclusion and the effects of credit expansion on lower income groups in South Africa

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Date

2016

Authors

Thompson, Gertrude Ruwa Tinotenda

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Abstract

The purpose of this research was to evaluate the effects of expanding access to credit for lower income groups in South Africa between the periods of 2007-2013. Achieving access to finance at the bottom of the pyramid, or financial inclusion, has been difficult for many developing countries. Credit has been used as a financial developmental strategy to increase financial inclusion in many economies and South Africa applied this strategy too. Using various national quantitative data sources this report used descriptive statistics to explain the effects of the financial developmental strategy on the lower income groups in South Africa earning between R0 and R7, 499 per month. Through the research findings it was realized that there was poor financial capability despite there being an understanding of financial literacy concepts. It was also found that non-credit related inclusion has decreased the unbanked population whilst credit related inclusion generally led to high levels of debt, less disposable income and an increase in consumptive behaviour. The types of credit that are being granted to the lower income groups are not conducive to the creation of wealth, and therefore credit as a financial developmental tool is not a suitable strategy for the South African lower income groups that are not financially capable.

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MBA

Keywords

Microfinance -- South Africa. Banks and banking -- South Africa.Credit -- South Africa.Poor -- Finance, Personal.

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