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MICROFINANCE IN SOUTH AFRICA

MICROFINANCE IN SOUTH AFRICA. Marié Kirsten DBSA Rethinking the Role of National Finance Institutions in Africa The Role of SMEs 23 November 2006. Socio-Economic realities in South Africa 2005. SA per capita income = $12 000 pa = 52 wealthiest out of 177 countries

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MICROFINANCE IN SOUTH AFRICA

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  1. MICROFINANCE IN SOUTH AFRICA Marié Kirsten DBSA Rethinking the Role of National Finance Institutions in Africa The Role of SMEs 23 November 2006

  2. Socio-Economic realities in South Africa 2005 • SA per capita income = $12 000 pa = 52 wealthiest out of 177 countries • HDI declined from 85/177 in 1990 to 120/177 in 2004 • Gap between per capita income and HDI -68 in 2004 • This means that the economy is growing but the benefits of growth is not shared • > 40% of population are unemployed (wide definition) • 25.2 million people live on < $2 a day (>50% of population) • Highest Gini-coefficient in the world

  3. Financial Access realities in South Africa 2005 63% financially served 53% without formal bank access Formal - Other 8% Informal – 8% Formal Banked 47% Un-Banked 37% 0% 100% 99% Black 16-29 age group Tribal land and urban townships No property or assets

  4. What did government do about this? • 1992 – Exemption of the Usury Act • 1995/6 – NHFC and KHULA created • 1999 – Micro Finance Regulatory Council created and new exemption makes registration compulsory • 2002 – National Loans Register - database of all MFRC lenders and loans • 2003 – Financial Sector Charter

  5. PERCENTAGE OF LSM 1 – 5 WITH EFFECTIVE ACCESS TO: 2008 ACCESS TARGET 2003 ACTUAL USAGE Transaction Accounts 80% 32% Bank Savings Products 80% 28% Life Insurance Products 23% 5% Collective Investment Savings Products 1% plus 250000 Negligible Short Term Risk Insurance Products 6% Negligible Financial Sector Charter - Access Targets

  6. Mzansi Bank Accounts • A Charter Initiative – Introduced October 2004 • A valid ID the only condition • Deposits, withdrawals, transfers locally, debit card payments • ABSA, First National Bank, Standard Bank, Nedbank and the Post Bank • 91.3% Mzansi account holders are first time banked • 62% are between 25 and 54, > 50% women, average balance R300 (US$40) • 1.5 million active accounts

  7. FURTHER REGULATIONS… • National Credit Bill – June 2006 • Dedicated Banks Bill • Cooperative Banks Bill and new Apex institutions… • South African Microfinance Apex Fund (SAMAF) – 2006 • Micro Agricultural Finance Schemes SA (MAFISA) - 2005

  8. The Small Enterprise Foundation • Aim of poverty alleviation through microcredit • A section 21 NGO – non-profit • Founded in 1991, started operations in January 1992 • Inspired by Grameen Bank

  9. Current Performance • Currently serving over 35 000 active clients • % of women clients: 99% • Almost 300 000 loans since inception • Average loan size: $200 / R1547 • Loans since inception: $45 / R330 million • Loan losses since inception: 0.5% • Attained full break-even in Sept 2004

  10. Annually Quarterly Growth and Sustainability

  11. Empowerment • Belief in people’s ability • People treated as clients • Hold people 100% to their group guarantee • Client must decide on the business • Client solves all problems • Although there is support from other clients and facilitation from staff

  12. SEF vs. MFI Peers

  13. How SEF works … • Clients form groups of 5 • Each receives their own loan for their own business • All group members guarantee each others loans • Groups meet fortnightly in Centres of about 8 groups meeting at a time

  14. Key issues…. • SEF is achieving > 25% growth a year currently • SEF achieved break even 12 years after conception • The profitable SEF is growing much faster than the non-profitable SEF • There is absolutely no trade off between impact (reaching the very poor) and profitability • Competent management made all the difference

  15. Financial Sector Charter LSM 1-5 in summary • 63% (19m) of adult population • 79% of whom have monthly incomes of less than R1,000 • …but of whom 21% (4m) have incomes of between R1,000 – R6,000 • 94% black • 10,3m living in rural areas • 68% unbanked; 95% uninsured, long or short • 3,1m child grant recipients (total 3,6m)

  16. New SEF initiatives • IMAGE RESEARCH – HIV/AIDS and Gender Violence training combined with microfinance • Substantial improvement in the financial performance at participating centres • A significant decline in gender based violence amongst training recipients • SEF is also pioneering life insurance for its clients

  17. Sustainability • Attained full break-even in Sept 2004 • Now expanding from 27 000 to 45000 clients • Now covering 95% of all costs

  18. Current Performance … • Write-off policy: 85 days • Current Portfolio at risk 0.7% • Loan losses since inception 0.5%

  19. “The apartheid system severely distorted the South African financial system. A handful of large financial institutions….centralize most of the country's financial assets. But they prove unable to serve most of the black community, especially women. Nor do they contribute significantly to the development of new sectors of the economy. Small informal-sector institutions meet some of the needs of the black community and micro enterprise. They lack the resources, however, to bring about broad-scale development” (RDP, 1994).

  20. R 10 000 R300

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