Category Life Insurance

Leveraging South Africa’s traditional savings schemes for growth

30 July 2020 Jobs Fund

Jobs Fund partner uses savings to drive economic inclusion of poor South African women

Promoting a savings culture in South Africa is fraught with many challenges. The coronavirus pandemic has, more than ever, highlighted the extent to which South Africans are ill-prepared to absorb financial shocks.

Informal savings schemes used by many of South Africa’s economically marginalised communities have the potential to not only foster this culture but also deepen economic inclusion.

The Jobs Fund, a R9 billion fund established by the South African government to generate sustainable employment amongst previously disadvantaged South Africans, youth and women, has partnered with several organisations that have successfully built savings networks that drive economic inclusion,” says Najwah Allie-Edries, Head of the Jobs Fund.

The Phakamani Foundation, a not-for-profit organisation that empowers poor women to succeed at micro-enterprise has partnered with the Jobs Fund. It facilitates an integrated programme of micro-enterprise training, group loans, and mentorship support. The programme provides income, savings, and hope for the next generation. Phakamani only works with and lends to people who are prepared to help themselves. When loans are paid back they are re-cycled to assist other entrepreneurs. “Every rand is therefore leveraged to help as many people as possible,” says Eric Crawford, CEO of the Phakamani Foundation.

The Phakamani Foundation currently supports approximately 33 000 South African women utilising a Grameen Bank lending methodology, facilitating the creation of six-member micro-enterprises. While the six-member groups are not required to have savings to start a micro-enterprise, once they have been trained on key business principles, they are given a loan via a formal bank account. The team members are then, “allowed to access funds for the development of their micro-business according to certain agreed, monitored and reported protocols,” says Crawford. As the micro-enterprise generates revenue some of the profits are re-deposited as savings into the bank account and a structured re-payment process is initiated.

As the micro-enterprise grows and more funding is required, the six-person consortium controlling the micro-enterprise is required to have at least 10% of the value of any additional capital that they plan to borrow in their bank account. In other words, saving for future growth becomes a precondition for further funding. This, “instils a culture of both savings and productive re-investment as team members observe, first-hand, the power of saving,” says Crawford.
One young woman who has benefitted from this programme is Athandile Sepatha, who earns an income from making and selling wigs as well as accessories thanks to a R1500 loan from Phakamani. She has successfully paid off two loans and is on her third. With the COVID-19 lockdown restrictions, she was unable to sell her wears or collect outstanding amounts from customers.

Necessity being the mother of invention, Sephata used her savings to stock up on fruit and vegetables as they were classified as essential items and this allowed her to continue earning an income under the stricter lockdown restrictions and pay her debt.

The greatest lesson she has learnt is that “When you have a business you need to save for unplanned events like COVID-19. Even if you get a penny you have to save some of it so you have a backup.”

Sephata is now working on rebuilding her business and dreams of opening a boutique where she can expand her offering to clothing.

Phakamani’s work amongst poor South African women, most of whom do not have bank accounts, has shown that contrary to the belief that South African’s don’t save, traditional and economically marginalised communities use a plethora of informal stokvels, funeral and savings clubs, and other communal deposit structures to save.

Where it exists, South Africa’s existing savings culture is directed towards survival, not growth. Since the bulk of this savings is used for emergencies or direct expenditure on clothing, food or bills, it is not directed towards productive, income-generating, initiatives.

What is clear is that the potential exists to re-direct the savings of potentially millions of South Africans towards more productive, income-generating, investment.

“To this end, initiatives like Phakamani that assist poor South African women to leverage their savings to invest in income-generating enterprises, are an important step towards re-focussing South Africa’s existing savings culture towards more capital enhancing investment that supports broader economic inclusion,” says Allie-Edries. “The immediate focus is to build financial resilience so these women can build resilient enterprises” she concludes.


Quick Polls


How to give affordable and appropriate financial advice to the low income market segment. There is little room on a R50 pm policy for advisers to be remunerated for the time it would it would take to educate & fulfil admin function. What is the solution?


[a] Eliminate non-advice sales / telesales
[b] Implement industry standards for non-advice information
[c] Introduce an insurer-funded pro-bono advice network to low income earners
[d] Reinforce the Policyholder Protection Rules
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