THABILE WONCI: Home truths on financial inclusion

SA Reserve Bank governor Lesetja Kganyago made a prescient comment a few weeks ago at a virtual event when he said that “people think financial inclusion is like shoving credit down the throats of the poor ... that is not quite financial inclusion”.

Financial products and fintech mobile applications are being launched almost daily, with the stated aim of increasing financial inclusion. Yet SA’s prevailing financial system is unequal and exclusionary by design. This is not just a flaw in the financial sector but a foundational problem of our democracy.

We need to do away with the misconception that what stands between financial exclusion and full inclusion is technology or mobile applications. This obscures the real problem. Financial inclusion is a broad term that encompasses access to bank accounts, banking facilities, credit facilities and financial services of any kind. In broad terms, financial services can be divided into two categories — the payments system and the credit system.

When fintech firms launch their technologies they usually cite their primary goal as enabling the unbanked and underbanked to play an active role in the financial system. But the lack of access to the payments system by the unbanked and the underbanked needs to be addressed. Their interaction with the financial system must be through a safe, low-cost and efficient way of sending and receiving money. It is important that the unbanked and underbanked are protected from the scourge of cybercrime and excessive service costs.

By definition, financial inclusion includes access to credit products. The credit system must play the important role of bringing affordable credit products to the unbanked and underbanked, instead of “shoving credit down the throats of the poor” and claiming that the “access” aspect of financial inclusion has been addressed. That’s gap filling, which is usually anchored on predatory lending practices, a system that’s meant to squeeze profits from an already cash-strapped consumer market and just reinforces the adage that “it’s expensive to be poor”.

It is not enough to include the unbanked and underbanked through mobile applications, fintech products or predatory credit products when these don’t address people’s quest to be included in the financial system. Fintechs are not the primary solution, nor is the creation of new fintech products and mobile applications a panacea for financial exclusion.

What we refer to as financial inclusion is not supported by any policy framework and completely misses the important role the financial system, government and regulators ought to play in addressing the problem of financial exclusion. The design of the payments and credit systems can no longer be the sole responsibility of the market; they must be a result of the decision-making by government and the regulatory system.

Those who find themselves outside the financial system usually pay more for credit and financial services precisely because they outside the system and are therefore regarded as a bigger risk.

The prevailing notion of financial inclusion is self-serving; it’s less about bringing the unbanked and the underbanked into the mainstream financial system and more about extracting more from them under the disguise of bespoke fintech products, mobile applications and credit products. This misconception should challenge us to look closely at the policy framework and the posture of our key institutions in addressing financial inclusion.

To Governor Kganyago’s point, access to credit shouldn’t be characterised by the quantity of the available credit but by the quality of the available credit. The entire financial system needs to be evaluated and its effectiveness tested against the country’s prevailing public policy framework.

The promotion of safe and low-cost financial inclusion must be a public policy decision. Unfortunately, in our daily articulation of what financial inclusion means in SA we evade the role of public policy. The current rhetoric of financial inclusion completely erases the role of the SA Reserve Bank in advancing financial inclusion. Similarly, the discussion of financial inclusion is seen as separate and disconnected from the country’s monetary policy framework.

Any discussion on financial inclusion and access to credit that is detached from government policy is incomplete. The conversation about the provision of financial inclusion primarily to the unbanked and underbanked should take a centre stage in government’s policy-making, and not be confined to the fringes.

The prevailing system of financial inclusion and access to credit is flawed and needs a complete review as it focuses mainly on inclusion, access and gap filling, without addressing our peculiar socioeconomic fundamentals. Now is the time to for our policymakers create a path to financial inclusion that will help us achieve economic justice and shared prosperity by taking the above into account.

• Wonci is CEO of Kogae Rainbow Investment Holdings and a senior partner at Kogae Advisory Partners.