Johannesburg - The perceived lack of financial inclusion in South Africa has an increasing number of international agencies voicing concern around the number of “unbanked people'' and the “high prevalence of cash as a financial medium in the country.
The recent Financial Action Task Force (FATF) grey listing can be seen as a clear example of this. Payment solutions company, Amplifin, said this is not, however, a problem that can be immediately solved for a number of reasons unique to the South African economy including corruption and a general lack of willingness among South Africans to pay their taxes.
Managing director for Amplifin, Riaan de Swardt said the global transition to a cashless economy is accelerating as more consumers adopt alternative payment systems to cash.
“Financial inclusion” is the idea that “individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way,” said de Swardt.
Statistics from the World Bank show that as many as 12 million South Africans do not have a bank account nd many others have limited access to banking. The World Bank and other organisations have openly stated that it is essential for SA to increase financial inclusion in order to arrest the use of cash, reduce inequality, kick-start financial growth and ultimately establish greater controls of the kind demanded by FATF.
De Swardt said the digital way the first world does business is simply not how most South Africans see money.
“The majority of South Africans are not part of the formal economy, once measured against international standards. For them future savings come through stokvels with funeral assistance coming through a funeral parlour (both foreign concepts in a first country economy). Taxis are used for transportation and most purchases are made through informal traders and Spaza shops. These are all cash businesses,” he added.
De Swardt explained that the prevalence of cash in South African society comes as a direct result of the perception of tax abuse in the country, and a rejection of the high tax rates as a result.
“South Africans believe their taxes are too high, and that they are being abused. For instance, there is a perception among taxi owners and taxi drivers that the levy incorporated in the petrol price is already too high and should be the totality of their contribution to paying tax and their contribution to the economy,” he said.
Experts also agree that unless the political environment changes, corruption is addressed and the abuse of the formal sector’s tax money ceases, various businesses classified as informal and “cash rich” and who do not require access to credit, will remain informal.
De Swardt further explained that many of the international requirements and regulations, which make sense within a first world context, don't make sense in a developing economy.
“Things the people in a developed economy assume simple, are not always applicable here. There are rules that banks need to apply to open a bank account for the average South African – this is before we have even gotten to granting credit to them. This is part of where the banking system’s dilemma lies. We need to stay within the broader international requirements, but it remains difficult to allow many of these participants to operate more fully in an electronic manner,” said de Swardt.
Despite all of this, there have been moves by companies like Amplifin to include more South Africans in the formal economy.
Pienaar Zietsman, Chief Finance Officer for Amplifin, explained that no one is questioning the importance of financial inclusion.
“It is absolutely vital for economic growth, and there are enormous benefits for those who are brought into the formal economy as well. Having a bank account allows people to plan for the future, save money, build assets and take out loans, all of which could help them develop a secure financial future. It’s also safer than carrying cash, which is an important consideration in South Africa,” Zietsman said.
Amplifin advised that instead of purely considering bank accounts and loans, it might be appropriate for international agencies to consider the increased financial inclusion of eWallet offerings for instance.
Chief Brand Officer for Amplifin, Steven Maier said their eWallets are a facility that allows businesses and employers to pay money to their clients or employees who do not yet have accounts and that the eWallet base is growing constantly.
“Over the last 3 months, an average of R 450 million was paid into eWallet accounts via 271 000 individual payments per month,” said Maier.
Another challenge is that of smaller businesses in South Africa choosing to remain cash based due to the issues around tax and corruption, making the willingness of consumers to pay with an eWallet or debit card significantly less impactful.
“For many businesses, it seems financial inclusion and building an electronic footprint is not a priority. They do not benefit from reclaiming input VAT either. Contributing to the South African economy by paying company and personal tax is not a consideration but staying below the “government tax radar” is,” concluded de Swardt.