Financial services industry extends reach
One of the challenges facing South Africa’s financial services industry is to provide wider access to basic financial products. To this end a number of projects to ‘bank the un-banked’ and promote savings and insurance products to lower income earners have been launched in recent times. The most successful financial product catering to LSM 1 to 5 so far is undoubtedly the Mzansi bank account. Launched in October 2004 as a joint initiative between the banks, the Banking Council and Nedlac it attracted one million account holders within seven months of its launch. Account holders can open or transact on their accounts through the country’s four main commercial banks and government’s Postbank.
In 2007 the financial services industry launched a number of new initiatives in other financial areas. The Life Offices’ Association introduced the Zimele product standard to boost confidence through affordable death, disability and funeral products, Old Mutual created the Domestic Worker’s Plan to assist retirement savings for the country’s million plus domestic workers, and the Association of Collective Investments joined with government to launch the Fundisa Fund to assist with saving for tertiary education. How do we measure the penetration achieved by various financial services initiatives?
Benchmarking access to financial services
Enter FinScope™ – launched in 2003 by Finmark Trust to create “credible benchmarks for the use of, and access to, financial services in South Africa.” In today’s newsletter we look at some of the key findings from the FinScope™ South Africa 2007 Study. The study was conducted by TNS Research Surveys and is based on face-to-face interviews with 3 900 South African residents aged 16 or older. What did the survey reveal?
The first area covered in the survey was banks. Approximately 60% of South Africa’s adult (over 16) population has a bank account. The growth rate has improved; but total coverage remains below the Financial Sector Charter’s goal of ensuring 80% of South Africans in LSM 1 to 5 have “effective access to first order retail banking products by 2008.”
The Mzansi account mentioned earlier remains one of the major tools to ensure that this goal is eventually met. Major growth continues to come from the Mzansi bank accounts with approximately 10% of adults above 16 having such an account. The report states that some 800 000 new accounts were opened in 2007. There are still some teething problems with many respondents unsure about how the account works. And many individuals still feel the Mzansi bank charges are excessive and that the product is simply not affordable.
Short-term insurance meets resistance
The general population is still fairly resistant to short-term insurance. The survey shows that although “asset insurance has increased from 9% in 2006 to 11% in 2007, 62% of respondents still say they would not consider taking out short-term insurance.” This attitude is most prevalent in the LSM 1 to 5 Category where the survey reveals short-term insurance is practically non-existent. It makes sense that such individuals might not be able to afford short-term insurance… And further investigations would be needed to determine whether individuals in those categories have enough assets to warrant short-term insurance in any event.
A frightening statistic is that despite huge increases in the number of vehicles on South Africa’s roads, motor insurance coverage remains virtually unchanged. This is particularly alarming given the high rate of road accidents in the country. Motorists face an increasing risk of being involved in accidents with uninsured vehicles.
Funeral cover remains South Africa’s ‘must have’ policy
46% of South Africans over the age of 16 have funeral cover of some kind. The survey rebases its findings to the 2001 National Census and determines that some 14.5m individual have some exposure to a funeral policy. This large coverage is perhaps explained by the country’s high death rate with almost 4% of households experiencing the death of a main wage earner in the preceding 12 months.
The survey throws some light on the most dominant (by policy numbers) category of long-term insurance in the country. For the most part, respondents were unable to indicate how much money they or their families would receive in the event of an insured event. According to the survey, those that know how much they will receive in the event of a death are covered for an average R6 000. So although coverage is quite extensive, the actual level of cover is wholly inadequate. This is part of the R10trn insurance gap highlighted in a recent survey commissioned by the Life Offices’ Association and confirms the importance of some form of death and disability solution in the proposed social security reforms. Funeral policies reach almost as many individuals as bank products! An interesting revelation is despite the awareness campaigns and ‘cheaper’ funeral policy options introduced with the Zimele standard most of the growth in this area came from informal burial societies. 29% of adults (over 16) claim to be a member of such society.
The survey concludes: “While there are extremely encouraging increases in the penetration of financial services products, both formal and informal, and encouraging improvements in basic living conditions, there are now even more pressures on household amenities and finances.” It is clear that South Africa has a long way to go to achieve acceptable levels of financial product penetration.
Editor’s thoughts:
The Financial Sector Charter wanted 80% of LSM 1 to 5 to be ‘banked’ by 2008. The FinScope™ SA 2007 Study shows the actual number of ‘banked’ in this category stands at only 44%. Are the financial targets contained in the Financial Sector Charter realistic? Add you comment below, or send them to gareth@fanews.co.za
