Treasury publishes policy framework for SA as its seeks to deepen financial inclusion

Houses for sales.Treasury is seeking to support wealth creation among the currently un- or under-served while also increasing the level of home ownership in South Africa. Photographer: Independent Newspaper

Houses for sales.Treasury is seeking to support wealth creation among the currently un- or under-served while also increasing the level of home ownership in South Africa. Photographer: Independent Newspaper

Published Nov 28, 2023


The National Treasury Treasury yesterday published the Financial Inclusion Policy Framework for South Africa, which seeks to deepen financial inclusion for individuals and households, extend access to financial services for SMMEs, and leverage a more diversified provider and distribution base for financial services.

It explores the feasibility of using other types of security such as permission to occupy (PTO) tenure as acceptable collateral for financial institutions seeking to provide home loans or mortgages, in a bid to support wealth creation among the currently un- or under-served while also increasing the level of home ownership in South Africa.

This is one of the 16 priority areas seeking to promote appropriate credit for assets and investment over consumption which has been proposed for development in the updated financial inclusion policy.

Treasury said underlying problems prevalent in the quality and use of financial services by individuals included low savings rates in the traditional formal sector, low take-up of non-banking products like savings and insurance products except funeral, credit, and legal cover products, inadequate or sub-optimal usage of bank accounts, underdeveloped payment options, and others.

Priority number four of the proposals calls for developing a project aimed at understanding and defining all barriers that may impact access to productive credit and design intervention that will enable regulators and financial service providers to respond, in a co-ordinated manner, to this challenge.

It said this should include imparting basic credit principles to consumers through consumer-financial education.

Included within this priority area is the reviewing and revising the Financial Sector Code to set access to finance targets for specified developmental loans.

According to the Comments Response Document, loans needed for students from low-income families should be informed by the government’s approach to improving funding for tertiary education.

The document says an approach that should be followed should reduce the credit risk for lenders by setting up a facility where the government shares the loss on defaults.

This in effect is a partial credit guarantee (PCG) scheme for education loans.

For student loans, it says the government should use the student's future income generation capability as the primary way of assessing if it is affordable for them, rather than the current approach which looks at the ability of another party, typically a parent or guardian, to repay the amount owed.

Treasury said the successful implementation of the Financial Inclusion Policy will require strong co-ordination among government departments and agencies, regulators, financial institutions and their representative bodies, and relevant civil society organisations.

It said this strategy and the targets thereof will be monitored through a Financial Inclusion Monitor, which will include a comprehensive set of indicators of access, usage, and quality.

Where interventions comprised in the strategy require any legislative or regulatory changes and where such changes may affect the ability of the financial services sector to fulfil its role and functions, such changes will be subjected to a thorough economic impact assessment (EIA) as required by Cabinet.

“Whilst much remains to be done to achieve the financial inclusion objectives, the headline figures on financial inclusion in South Africa over the last decade reflect positively on South Africa’s progress, with more than 81% of the country’s adult population having bank accounts,” Treasury said.

“However, given low economic growth and rising unemployment, many households are still restricted to using basic financial services.”

Another priority area that Treasury will be looking at is supporting increased formal savings for low-income earners.

With the aim of tapping the massive informal savings pool in South Africa, Treasury would perform a diagnostic on available savings mechanisms.

It said this should consider market failures, including those relating to product design and distribution, and make recommendations for improved savings models, whilst drawing lessons from countries such as India.

This should include the design of new and/or complementary savings products that support regular small-value savings, the extension of the product range for stokvels, and distribution improvements.

To create demand and a viable market for low-income retirement products, Treasury would assess the role that auto-enrolment in the retirement market can play in promoting access and use of retirement products.

It would also conduct research to understand whether the tax-free savings initiative has achieved its intended objectives and its impact on savings since inception.

It said this research should further outline whether this was an appropriate mechanism to improve savings among the low-income earners and if it’s not, recommend ways on how this product can be improved for the low-income target market.

As a result, Treasury would develop savings product standards for the financial services sector to define product requirements for entry-level savings solutions.