Mobile money could be key to more effective rural financial inclusion, research shows

Despite the relative sophistication of South Africa’s banking sector, and a concerted effort to improve South Africans’ access to financial services, people living in rural areas are yet to embrace and fully utilise financial tools. The answer, according to recent research, could lie in increased access to digital wallets.

Financial inclusion is a key enabler in poverty reduction, and it also has the potential to enable inclusive economic growth. Research into twenty-six sub-Saharan African economies found that “financial inclusion and economic growth share a strong long-run relationship”, and that there is “bi-directional causality, indicating synergy between these two variables.’ In other words, enhancing financial inclusion supports economic growth, and vice versa.

Jonathan Holden, COO at digital payments platform, SOLMate said that in the context of rural South Africa, there has been a significant push to improve financial inclusion, as many rural communities have limited access to traditional banking services. However, these efforts have not always resulted in increased use of financial services.

In 2022, Munacinga Simatele and Loyiso Maciko, economists at the University of Fort Hare, released a paper entitled “Financial Inclusion in Rural South Africa: A Qualitative Approach”. They found that while financial inclusion efforts had resulted in increased access to financial services, usage of those financial services had not necessarily followed.

For example, after significant efforts had been made to expand access to banking services in rural South Africa through the Mzansi account initiative, around 40% of the accounts were used only as “mailbox” accounts – that is, accounts used only to receive money that is entirely withdrawn.

South African Social Security Agency (SASSA) accounts, set up to access government grants, are similarly used: the researchers found that “in 2019, 69% of all accounts held by SASSA recipients were used only as mailboxes. This proportion is much higher than the national proportion of 50%. Therefore, low-income individuals are not engaging with the transactions accounts in a meaningful way.”

The study identified a set of possible reasons for this lag, including supply-side factors such as distance from physical banking infrastructure and the cost of transactions, and demand-side factors, including unemployment, low and irregular incomes, financial illiteracy, and perceptions of risk and trust. In conclusion, the authors suggest that “creating an enabling environment for the development of mobile money could overcome proximity barriers and result in better inclusion of rural communities.”

Mobile money enabled by a digital wallet provides a secure and convenient way to make payments, transfer money, and manage financial transactions. The enhanced use of digital wallets has the potential to play a crucial role in improving financial inclusion in rural South Africa.

Digital wallets provide a way for people to access basic banking services without the need for long-distance travel to physical bank branches, allowing users to perform financial transactions directly from their mobile phones.

Holden says, "Financial inclusion plays a vital role in transforming lives and driving economic growth. We are proud to be at the forefront of this transformation, offering a digital wallet solution that empowers individuals and businesses. Mobile money and innovative new payment products are potential game changers in terms of meaningful financial inclusion across the region.”

One of the key advantages of digital wallets in encouraging more people to access the financial system is their affordability. Maintaining a bank account can be prohibitively expensive for those living below the poverty line, and digital wallets enable marginalised populations to cheaply access essential financial services, including payments, savings, and remittances.

In rural areas, where many residents rely on remittances from family members working in urban areas or abroad, digital wallets can simplify the process of receiving and sending money. By providing easier access to financial services, digital wallets help rural residents save, invest, and eventually start small businesses, which also benefit from access to financial products. This can contribute to local economic growth and poverty reduction.

Offering convenience, accessibility and security, digital wallets are revolutionising financial services and empowering individuals who have historically been excluded from traditional banking systems. SOLmate, a leading online payment platform, is at the forefront of this movement, offering a robust digital wallet solution tailored to the needs of all South African residents including immigrants.