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South Africa has a unique banking structure. On the one hand, its highly regulated and compliant environment ensured that the country was largely protected from the 2008 financial crash. However, these same regulations and compliance environments make it commercially unviable to service smaller clients with little or no track records and insufficient assets such as fixed property that can be leveraged as collateral. This means that currently, the banking sector is not structurally suited to service the poorer, remote and rural areas of the country. High fee structures, lack of financial education, and an aversion by banks to retail credit, which is considered higher risk, are also contributing to the fact that so many entrepreneurs and small businesses in our country – and most developing economies – are still unbanked or underbanked.

The challenge is that these businesses are the catalyst in any economy for job creation and with limited access to banking and financing, these job opportunities are not realised, which has a further negative impact on the GDP and the economy. This makes it all the more important to start addressing the fact that many entrepreneurs cannot access the banking products and funds they need to launch and grow their businesses.

However, consider how this impacts not only the business, but business owners as well. When an individual enters the formal economy, they have access to resources, skills and information that was previously beyond reach. Banking the unbanked and underbanked is not only an economic imperative, it is a social imperative as well. Entering the formal economy brings dignity to the previously disadvantaged.

Finding a solution is imperative

As financial institutions, we need to understand that traditional banking products are not working for large segments of society, and yet we need to find a way to start supporting the unbanked and underbanked market. Technology and digital solutions are a great equaliser. Physical infrastructures that are far from remote and rural business owners becomes irrelevant and everyone can access the banking products they need. Similarly, digital solutions are for more cost effective because there are no overheads associated with infrastructure. Without branches, solutions can be far more affordable and therefore accessible.

A great banking platform cannot support business owners if it does not support the entire journey, particularly for start-ups who need foundational business and financial support. Particularly for individuals who have not been exposed to financial literacy or small business basics, the ability to track income, expected income, outstanding invoices and cashflow through one dashboard is key.

Next, we need to look at dynamic and bespoke products to meet customer needs. We’re all fond of saying that one size does not fit all, but what does that actually mean? Through collaboration between central banks, Development Finance Institutions, foreign sponsors, and local commercial banks, we can financially enable the underbanked and extend credit facilities to SMEs that are based on their specific needs and the realities of what it means to operate a small to mid-sized business in South Africa.

We cannot stop with products and access to funding, however. Financial literacy and business acumen are also key to success.

Why is this important? Many small business owners recognise that they have gaps in their business acumen, but they don’t know how to access the information they need. To address this, it’s important for business owners to have access to high quality, free content that offers real-world business lessons and value. In other words, we all need to share what we’ve learnt.

The benefits of banking the underbanked

The ability for small businesses across our economy and regional centres to flourish are myriad. A healthy economy built on small businesses drives job creation. Job creation alleviates poverty and gives people access to resources, more formalised living arrangements and food security, as well as children access to better education. More money circulating through the economy supports GDP growth as well.

Ultimately, a healthy and inclusive economy supports positive social outcomes, gives communities dignity and most importantly, has positive social outcomes. Consider how crime rates would fall, gender equality would rise, women would be more empowered, curtailing GBV and the overall desire to contribute positively to society grows when people feel valued, seen and able to support themselves. And all of this is possible through supporting and enabling the creation and growth of small businesses.

When we collectively support these entrepreneurs, we will see new market opportunities emerging for the private sector, fintech start-ups flourishing and productivity support to larger organisations, enabling their growth as well.

Yes, there are many reasons why this sector remains underbanked. We have red tape, regulations, legacy systems, compliance issues and risk factors to consider. But these issues can and should be addressed.

We can no longer afford to ignore the unbanked and underbanked. Bringing these businesses into the formal economy through becoming long-term financial partners and by providing solutions and not just products is a good start on a path to resolution. 

This article was originally published by the Association of Corporate Treasurers of Southern Africa (ACTSA) on in partnership with Treasury Management International (TMI). It is reproduced here with their permission.

About the Author

Dhesegan Govender
Sasfin Holdings, Head: Group Treasury and Debt Capital Markets

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