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Will financial inclusion alleviate poverty?

01 June 2017 Norton Rose Fulbright
Christine Rodrigues, Director at Norton Rose Fulbright

Christine Rodrigues, Director at Norton Rose Fulbright

Imagine young students sitting in a Wits (University of the Witwatersrand) lecture hall being asked by Professor Robert Vivian what insurance is and why it is important to our economy.

My concept of insurance and its value was the perception I had developed from my parents. They considered it to be too expensive and a grudge purchase.

 

Assistance policies

 

However, as Professor Vivian was quick to tell us, insurance is important to the South African economy as it is a form of savings and encourages saving across all consumer groups.

 

Millions of funeral policyholders know that a few Rands a month can ensure that anyone can have a respectful burial and that the family that is left behind will bury their loved one in a dignified manner.

 

Our industry however, needs to develop beyond offering assistance policies. It is our responsibility to create other insurance products that will gain that respect and will continue to encourage the concept of saving.

 

Financial inclusion

 

National Treasury’s 2011 policy paper “A safer financial sector to serve South Africa better” lists, as one of the four key financial sector policy priorities expanding the access through financial inclusion.

 

Financial inclusion means that all individuals and businesses have access to useful and affordable financial products and services that meet their needs and that such financial products and services are delivered in a sustainable way.

 

Stable financial conduct means people and businesses plan for everything from long term goals to unexpected emergencies. Financial inclusion does not only benefit the disadvantaged but benefits the economy as a whole because it is linked to a country’s economic and social development, and plays a role in reducing extreme poverty.

 

The government has played a key role in facilitating financial inclusion by adopting the Financial Sector Charter. In addition South Africa is working towards fulfilling its commitment to implement the G-20 Principles for Innovative Financial Inclusion.

 

The nine core G-20 financial principles are:

1.    Leadership: Cultivate a broad-based government commitment to financial inclusion to help alleviate poverty.

2.    Diversity: Implement policy approaches that promote competition and provide market-based incentives for delivery of sustainable financial access and usage of a broad range of affordable services (savings, credit, payments and transfers, insurance) as well as a diversity of service providers.

3.    Innovation: Promote technological and institutional innovation as a means to expand financial system access and usage, including by addressing infrastructure weaknesses.

4.    Protection: Encourage a comprehensive approach to consumer protection that recognises the roles of government, providers and consumers.

5.    Empowerment: Develop financial literacy and financial capability.

6.    Cooperation: Create an institutional environment with clear lines of accountability and co-ordination within government; and also encourage partnerships and direct consultation across government, business and other stakeholders.

7.    Knowledge: Utilise improved data to make evidence based policy, measure progress, and consider an incremental test-and-learn approach acceptable to both regulator and service provider.

8.    Proportionality: Build a policy and regulatory framework that is proportionate with the risks and benefits involved in such innovative products and services and is based on an understanding of the gaps and barriers in existing regulation.

9.    Framework: The regulatory framework needs to be based in the context of a globalising world. The framework needs to grow and build on good regulatory practice. International standards as well as national circumstances need to be considered and must support a competitive landscape.

 

Practise and apply

 

Despite financial inclusivity being a legislative requirement, each one of us has the ability to practise and apply at least one of the above nine principles. It is our social responsibility to contribute to financial inclusion in the manner we are best able to.

 

Let us change the view of insurance. Let us build a positive perspective. Let us all contribute to alleviating poverty.

 

Quick Polls

QUESTION

Is relying on a primary home as a source of retirement equity still a viable strategy for South Africans?

ANSWER

Maybe, depends on location
No, too unpredictable
Not sure, 50-50
Yes, always
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