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During Human Rights Month, when we commemorate the right to human dignity, equality and freedom for all South Africans, it is important to reflect on what more can be done to promote these ideals. 

Although financial inclusion is not regarded as a basic human right, its contribution to economic and social equality mean that it should be considered as a right rather than a privilege. However, with 11 million South Africans estimated to be either unbanked or underbanked, this right remains elusive to almost a quarter of our population.

According to James Williams, Head of Marketing at short-term lender Wonga SA, a financially inclusive society is one in which individuals and businesses have access to financial products and services that meet their needs. This includes savings, credit and insurance products that protect them from financial risks and allow them to improve their financial wellbeing.

However, one only needs to look at the popularity of the informal financial market to realise that there is an appetite for financial products and services that is not being met by formal service providers.

Williams cites the prevalence of informal saving and credit schemes as an example. Currently there are an estimated 800 000 stokvels in South Africa however only 4% of these are return generating investment clubs. Recent research by Wonga also indicates that there is a prolific informal lending market in South Africa, with as many as 40 000 mashonisas or loan sharks currently in operation.

“Our research indicates that consumers favour informal lenders for their convenience and perceived simplicity, despite exorbitant interest rates and questionable debt collection strategies,” he explains.

He attributes this to a mistrust of financial institutions which is aggravated by low levels of financial literacy.

“As a result of limited financial literacy, low income earners often distrust financial institutions, are wary of the charges they incur and don’t understand the benefits they provide,” he says.

Unfortunately, these are often the individuals who stand to benefit the most from such services. A loan, for example, can help them invest in an education or acquire the basics needed to access employment or business opportunities. Insurance will help them negotiate challenges, while still being able to put food on the table and, most importantly, saving will help them afford a better life for themselves and their loved ones.

This is an issue which government seeks to address through the new Twin Peaks regulatory model by which the Financial Services Conduct Authority will ensure that financial institutions treat customers fairly and promote financial literacy.

Treating customers fairly means ensuring that financial products and services meet customers’ needs and that their benefits and limitations are well understood. Financial literacy is a key element of this, helping customers make sense of financial products, choose the right service providers and ensure that their needsare being met.

As a result of this mandate, many respected financial institutions are supporting financial literacy initiatives. Wonga, for example, recently launched the Wonga Money Academy, an online learning platform that teaches the basic tenets of financial literacy including savings, debt, budgeting and investing.

“Educated consumers find financial services less daunting and understand the value they offer over the informal market, explains Williams. “This acts to promote financial inclusion, which equates to a more equitable society as well as increased revenue for the formal sector, so everybody wins,” he concludes.  

PERSONAL FINANCE