Study finds grant recipients likely to be active in financial markets

2010-03-03 11:35

RECIPIENTS of social grants are likely to have a higher level of

activity in financial markets, both formal and informal, a study released today

shows.

The study, entitled “The effectiveness of and use of social grants

in South Africa,” was conducted by The Institute for Poverty, Land and Agrarian

Studies (PLAAS) and the Economic Policy Research Institute (EPRI) for FinMark

Trust.

The study added that recipients of social grants were also likely

to obtain credit on more favourable terms.

“Grants substantially improve the status of households,

particularly in communities where social reciprocity plays such an important

role,” the study found.

“The certainty of the income makes a remarkable difference to the

status of the recipient and the ability to transact with those around them,” it

added.

What was different about this research was the way it had been

carried out, Rob Rusconi, FinMark Trust technical advisor said.

“It is the combination of both quantitative and qualitative

research, sensitively gathered and considered.

“Households are complex, often geographically spread out and with

relationships that change over the years.”

He said that without sensitive consideration of these complex and

shifting dynamics, inappropriate conclusions could be drawn.

“Central, therefore, is the willingness to understand over a long

period of time, the use to which grants may be put in extending their benefits

to many.”

Detailed case studies had been gathered as part of the research to

illustrate the dynamics of the effect of social grants.

“These are important in understanding our communities, their

aspirations and survival strategies if we are to meet their needs most

effectively,” Rusconi added.

Key findings from the study for FinMark trust showed that grants

were used for productive assets and to build human physical capital.

They were also used as an investment in the future, such as

increasing school enrolment and to construct or upgrade housing assets.

Social grants enabled higher levels of saving and were associated

with higher levels of engagement with financial markets.

“This occurs particularly with shorter-term transactional vehicles

like banks and informal arrangements such as stokvels (rotating mutual savings

societies), but also in longer-term investments that contribute to small

business activities,” Rusconi said.

“Recipients of social grants tend to engage more favourably with

credit markets, though not necessarily in expected ways, with lower use of

formal credit vehicles and higher rates of borrowing from friends and

family.”

This might reflect reduced dependence on relatively expensive and

inflexible credit products but could also flow from reciprocal financial

interaction between community members, supported by the grants, he said.

Most importantly, recipients appeared to use precautionary saving

as a substitute for borrowing.

“Social grants permit the leveraging of existing resources within

systems of social exchange and mutual assistance,” Rusconi added.

He said grants also provided seed capital for small

businesses.

“They also provide the material means to engage in non-remunerative

but socially essential activities, such as child care, often missed by

conventional analytical techniques,” he added.

Turning to policy implications of the research he said that

overall, the system worked.

“With consistency, grants are used wisely and without waste.

“Consideration should be given to expanding the social assistance

programme, and delivery of grants could be improved.”

FinMark Trust is a non-profit independent trust, funded primarily

by the UK’s Department for International Development.


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