AN INCLUSIVE FINANCIAL SECTOR FOR ALL Draft for consultation AN INCLUSIVE FINANCIAL SECTOR FOR ALL Draft for consultation To obtain additional copies of this document, please contact: Communications Directorate, National Treasury, Private Bag X115 Pretoria, 0001, South Africa Tel: +27 12 315 5757 | Fax: +27 12 406 9055 The document is also available on the internet at: www.treasury.gov.za AN INCLUSIVE FINANCIAL SECTOR FOR ALL Draft for consultation TABLE OF CONTENTS LIST OF ACRONYMS, FIGURES, AND TABLES ........... vii 3.1.3. Treating customers fairly (TCF) EXECUTIVE SUMMARY ................................................ 1 framework ................................................................... 31 1 INTRODUCTION ..................................................... 8 3.1.4. Financial Sector Regulation Act ..................... 31 1.1. What is financial inclusion 3.1.5. Parliamentary enquiry into and why is it important? ........................................................8 transformation of the financial sector ....... 32 1.2. Policy objectives and scope ............................................. 12 3.1.6. The Financial Intelligence Centre Act ........ 33 1.2.1. Objectives .................................................................... 12 3.1.7. Insurance Act ............................................................ 33 1.2.2. Scope ............................................................................. 12 3.1.8. Review of banking and payment methods in distributing social grants ........ 34 2 SOUTH AFRICA’S SOCIO-ECONOMIC AND 3.1.9. Other interventions ............................................... 34 FINANCIAL INCLUSION CONTEXT ...................... 14 3.2. Global trends towards 2.1. Socio-economic context .................................................... 14 coordinated Financial Inclusion Policy ...................... 34 2.2. South Africa’s financial sector .......................................... 15 3.3. International Principles 2.3. The evolution and current localized and made relevant for South Africa ....... 37 state of financial inclusion ................................................. 16 2.3.1. Access to financial services .............................. 17 4 Policy Pillars of Financial Inclusion .................... 42 2.3.2. Take-up and usage of financial services ... 20 Pillar One – Deepening 2.3.3. Quality of financial service provisioning .. 25 Financial Inclusion for Individuals .......................................... 43 2.3.4. SMME Financial Inclusion .................................. 26 Priority 1: Promote the beneficial use of transactional accounts ................................................... 44 3 FINANCIAL INCLUSION: LOCAL & GLOBAL Priority 2: Build appropriate POLICY DEVELOPMENTS .................................... 29 payment options to drive usage ............................................. 45 3.1. Policy and regulatory developments/ Priority 3: Position remittances as interventions relevant for financial springboard for further financial inclusion ....................... 49 inclusion in South Africa ..................................................... 29 Priority 4: Supporting increased 3.1.1. National Development Plan............................. 29 formal savings for low-income earners ............................... 51 3.1.2. Financial Sector Charter and Priority 5: In support of the National Credit Regulator, the subsequent Codes (FSC) ........................... 29 promote appropriate credit by promoting credit for assets and investment over consumption........................ 53 AN INCLUSIVE FINANCIAL SECTOR FOR ALL Draft for consultation TABLE OF CONTENTS Priority 6: Promote appropriate, 5 FROM POLICY TO ACTION: affordable and quality insurance ............................................ 57 A COORDINATED APPROACH ............................. 87 Priority 7: Increase the financial inclusion impact of social grant distribution ................... 59 6 MEASURING PROGRESS AND IMPACT ............... 89 Priority 8: Improve efficiencies in financial services client on-boarding ................................... 60 7 NEXT STEPS ......................................................... 90 Pillar Two – Extending Access to Financial Services Smmes ..................................... 61 8 ANNEXURE: THE IMPACT OF Priority 9: Improve access to credit by COVID-19 ON FINANCIAL INCLUSION ................ 91 building credit infrastructure for small businesses ...... 64 Priority 10: Broaden the range LIST OF REFERENCES ............................................... 105 of financing instruments available for SMMEs ............... 69 Priority 11: Use of transaction accounts and payment services by SMMEs ..................... 70 Priority 12: Suitable insurance for SMMEs ........................ 71 Pillar Three – Leverage a more Diversified Provider and Distribution Base........................ 73 Priority 13: Strengthening the financial co-operatives and developmental micro-finance sector .................................. 75 Priority 14: Explore role of the state in supporting sustainable financial inclusion ................. 78 Priority 15: Enable a broad base of agents in the provision of financial services .................... 79 Priority 16: Leveraging fintech disruptors to promote and support financial inclusion .................... 83 AN INCLUSIVE FINANCIAL SECTOR FOR ALL vii Draft for consultation LIST OF ACRONYMS, FIGURES, AND TABLES LIST OF ACRONYMS ABSIP Association of Black Securities and Investment Professionals AML/CTF Anti-Money Laundering and Combating the Financing of Terrorism ATM Automated Teller Machine ASISA Association for Savings and Investment South Africa BASA Banking Association South Africa B-BBEE Broad-Based Black Economic Empowerment BIAC Black Insurance Advisors Council BIOA Black Insurance Owners Association CFI Cooperative Financial Institutions DFI Development financial institutions FIA Financial Intermediaries Association FICA Financial Intelligence Centre Act FSC Financial Sector Code FSCA Financial Sector Conduct Authority GDP Gross Domestic Product G20 Group of Twenty G2P Government to Persons IMF International Monetary Fund I-SIP Inclusion, Stability, Integrity and Protection NASASA National Stokvels Association of South Africa NT National Treasury NDP National Development Plan NEF National Empowerment Fund OECD Organisation for Economic Co-operation and Development RICA Regulation of Interception of Communications and Provision of Communication-Related Information Act SAIA South African Insurance Association SEDA Small Enterprise Development Agency SEFA Small Enterprises Finance Agency (SEFA) SMME Small, medium and micro enterprise SWIFT Society for Worldwide Interbank Financial Telecommunication LIST OF FIGURES Figure 1 Product categories Figure 2 The financial inclusion landscape in South Africa Figure 3 Comparative access to financial services across BRICS and selected MICs Figure 4 Financial product uptake levels Figure 5 National Distribution of Stokvel Members Figure 6 SMME credit access Figure 7 SMME financial inclusion landscape Figure 8 Customer usage of M-Pesa compared to other money transfer products Figure 9 Mortgages granted per income category (number), 2007-2016 Figure 10 Credit granted per credit category Figure 11 Usage of SEFA credit guarantee scheme LIST OF TABLES Table 1 List of the Financial Inclusion Policy pillars, priorities and proposed projects for development Table 2 Number of financial services providers Table 3 International comparison of physical banking infrastructure AN INCLUSIVE FINANCIAL SECTOR FOR ALL 1 Draft for consultation EXECUTIVE SUMMARY The objective of this document is to establish the policy framework for financial inclusion in South Africa and to sketch the approach to its implementation. The document outlines Government’s policy to shape regulatory approaches, the evolving Financial Sector Code (FSC), and sector market practices in general. It also outlines Government’s plans to respond to the global coronavirus (COVID-19) pandemic from a financial inclusion perspective. Financial inclusion refers to the delivery of financial services at an affordable cost to vast sections of the population that are historically excluded or under-served by the formal financial sector. This policy considers financial inclusion as the mechanism to target these disadvantaged individuals and business enterprises, as they will have a pressing need for such services and will benefit the most when this policy is rolled out. In the South African context, the segments of society that underutilise financial services are inadequately provided for. Even if the services exist, they are often not easily accessible to the excluded and under-served. Furthermore, financial services are a significant enabler for a society’s social and economic development. Effectively, including people in the financial sector not only requires the availability of financial products and services, it also needs them to be convenient, affordable, fair and trusted. In addition, most South Africans must be able to use them. At an individual and household level, financial inclusion is a necessary component towards eliminating inequality and improving the quality of life of low-income people. The appropriate use of financial services by small, medium and micro- sized enterprises (SMMEs)1 improves their prospects, and positively impacts on the economic environment of the societies in which they operate. The benefits of financial inclusion