Making sure there’s money where it really matters

2012-07-03 00:00

In a country in which over 70% of the population would be unable to survive a personal economic downturn lasting more than three months, according to Visa’s financial-literacy barometer for 2012, South Africa’s poorest are leading the way. Recent research conducted in rural areas in KwaZulu-Natal and the Eastern Cape, has decisively challenged the perception that poor people do not save or that they do not need financial services because of limited incomes.

A report produced last month by FinMark Trust, focusing on the activities of savings and credit groups led by Pietermaritzburg-based NGO SaveAct in and around Bergville and Matatiele, shows that it is precisely because incomes are small, and often irregular and unpredictable, that managing the little money they have is a central concern for poor people. Not only do they have to meet daily expenses, such as food and transport, but they have to cope with medical and other emergencies, while still trying to raise larger sums for bigger expenses.

“The results show that rural people are absolutely able to save and will do so, provided they have a medium for saving that they understand, trust and can afford,” said Mike de Klerk, co-ordinator for the agriculture and rural finance projects run by FinMark, an independent body which identifies ways to develop “inclusive” financial systems that benefit the poor in Africa.

“I’ve worked in rural research for 40 years, and while I can’t pretend to know everything that’s going on in the sector, I know of no other rural finance initiative in South Africa with the potential of the SaveAct model for sustainable economic development,” said De Klerk.

What SaveAct has done is to fine-tune a savings and credit system used by over six million people in Africa, to produce a model which has proved so easy to understand and trustworthy in the eyes of its rural, mainly female South African beneficiaries, that demand for its services — helping to set up self-selected groups — far outstrips its current capacity. “SaveAct is unusual in that it is not involved in lending, but is the promoter of an approach and facilitates the sustainable implementation of that approach,” said De Klerk. In addition to basic training in the use of the model, SaveAct provides business-development training. Along with the month-to-month operation of the groups, this goes further to increase financial literacy — a crucial prerequisite for the sustainable uptake of financial services, said De Klerk.

Since it was introduced in KwaZulu-Natal in 2007, membership has grown to 15 000 people, 5 000 of whom have become members in the past six months, said SaveAct executive director Anton Krone. The total savings book across all groups, in both the Eastern Cape and KwaZulu-Natal, where the NGO’s network has spread, amounts to about R15 million and the average loan book is about R10 million. Members lend only among themselves, and receive an average annual payback of their savings, with an additional return of more than 30%. Default and membership attrition rates are less than one percent.

But it’s not just about savings. What inspires those, like FinMark, with an eye on sustainable economic development, is that simple access to credit at manageable interest rates has provided a strong basis for the development of small income-generating activities.

Each member is allowed to borrow up to three times the amount he or she has saved at an agreed rate of around 10% per month (less than local money lenders) and according to the FinMark report, more than 50% of savings and credit-group members are involved in their own small enterprise activities, using start-up or working capital, which is borrowed from the SaveAct-initiated group to which they belong. Income generated by these enterprises is, in turn, one of the most important sources of savings.

FinMark’s research shows that only 2,5% of rural small enterprises were able to get a loan from a bank in 2010.

Thus, in poor, rural and historically marginalised areas in which social grants and remittances from family members who have jobs in towns are the main sources of income , SaveAct-trained savings and credit groups are establishing what the report calls a “virtuous [as opposed to a vicious] circle” for upward-spiralling rural development”.

“The people we work with are outside the mainstream financial markets, and have suffered severely from the effects of apartheid. For them, there are very few effective strategies to deal with poverty and exclusion,” said Krone. In this context, the SaveAct model is a way to redress the problems arising from the past, and to create a bridge for people becoming more economically active and more able to deal with the social challenges of gender violence, poverty and HIV infection, all of which make it difficult to be economically active in the first place.

The success of organisations such as SaveAct has seen some banks sit up and take note. FinMark’s report notes that such activities are important in creating a stable platform for bank client growth in low-income rural communities — the most underserved segment of the market. Cellphones and other channels for providing low-cost “branchless banking” services, such as “cash machines”, “point-of-sale” credit/debit card machines and using retail stores and petrol stations in rural areas as agents, are already taking their savings and transactions services to a growing number of low-income rural users.

However, banks’ credit-led loans have remained at a low level. As the report observes, banks have tended to see lending as “an autonomous activity that precedes savings”, and which, therefore, requires adequate collateral security and demonstrated repayment ability — neither of which they perceive most low-income rural households and small enterprises as being able to offer.

SaveAct’s savings-led approach is showing the way, said De Klerk. However, banks are not going to find competing easy, and any move to provide more credit than groups are able to handle is likely to lead to the collapse of this promising platform, as experience elsewhere has shown.

Professor Gerhard Coetzee, director of the Centre for Inclusive Banking at the University of Pretoria, agrees: “These are fragile groups and too much external interference will break the social bonds, so one should get outside institutions to support sensitively, rather than to overpower.”

Until now, the provision of such “sensitive support” has come from SaveAct, the success of which, said Coetzee, is evident in the way in which most groups have managed to sustain themselves beyond the 12-18-month “pre-graduation” training period, during which they are supported by SaveAct field officers.

“There’s no ‘silver bullet’ for rural development,” said Krone, “but a savings-led credit system which allows and encourages people to engage in sustainable economic activity, is about as close as we’ve yet got.”

• FinMark Trust’s research findings will be presented at the Financial Literacy Association conference — “Promoting financial literacy: taking financial education to the people” — taking place today and tomorrow on the local University of KwaZulu-Natal campus. For more information, contact Christi Naude (office of the Finance MEC) at 082 861 0114.

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