Publications
Partners
Social grant holders use their bank account as a mailbox from which they withdraw the money that has been transferred from Sassa, which implies they rarely use their bank accounts as a store of value, explains Farai Muronda.
The grant distribution system has a tremendous impact on how the poorest South Africans interact with the financial services system. Financial inclusion of the poor, measured by the extent to which they have access to and make use of financial products, was boosted greatly in South Africa by the decision to distribute grant payments digitally.
As the South Africa Social Security Agency (Sassa) considers a new solution for the payment of grants, it is important that any such solution maintain and build on the financial inclusion of beneficiaries achieved thus far and encourages more beneficial use of bank accounts and other financial services.
The South African social grant system is one of the largest social welfare transfer systems in the developing world, transferring over R152bn in social assistance to over 17 million grant recipients.
According to a FinMark Trust report, “Digitisation of social grant payments and financial inclusion of grant recipients in South Africa”, only 44% of the general population and 36% of grant recipients had bank accounts as recently as 2004.
The report was compiled using data from the FinScope SA 2016 consumer survey. It showed that, since 2012, when digital distribution of grants via bank accounts was established, bank account ownership has increased significantly. The survey now shows that 77% of the general population is banked. This is driven by the fact that 100% of Sassa grant recipients are now banked.
The report sees access to bank accounts as a gateway to other financial services such as savings, credit and insurance. According to the report, the savings behaviour of Sassa grant recipients shows a volatile pattern of peaks and troughs which may be reflective of the general state of the wider economy.
For example, the rising unemployment and slow economic growth has resulted in the survey showing the lowest levels of savings by Sassa grant recipients since 2007. Be that as it may, the data shows consistent propensity to save at least some of the grant benefits. This positive savings behaviour could be further stimulated by better financial literacy and greater access to cheap savings products.
There is a worrying trend in the increasing levels of over indebtedness of Sassa grant recipients. The proportion of grant recipients accessing credit has shot up from 20% in 2012 to 41% in 2016.
The overwhelming majority of this credit is formal consumptive credit through mechanisms such as store cards and high interest unsecured credit. This may be a consequence of the extension of parallel financial services during the course of grant distributions.
There is also a generally increasing trend in the use of insurance cover by Sassa grant beneficiaries, the overwhelming majority of which is funeral cover (only 7% of Sassa grant beneficiaries reported owning a non-funeral insurance product). Again, the high rates of usage of funeral insurance may be related to provision of these products during the course of grant distribution.
Account usage
The benefit of financial inclusion accrues to account holders when they use bank accounts as a store of value and or to activate payments. Hence, the report analysed the extent of usage of bank accounts among social grant holders using the frequency of transactions. It emerged that cash withdrawal is the most frequently used transaction and this phenomenon has seen an increasing trend over the years.
This implies that social grant holders use their bank account as a mailbox from which they withdraw the money that has been transferred and rarely use their bank accounts as a store of value.
Further analysis of the patterns of usage of Sassa MasterCard accounts by grant recipients confirmed that grants are almost immediately withdrawn in cash as soon as they are disbursed. The survey has been tracking answers to the question “As soon as money is deposited into your account, do you take all of it out?” since 2007.
Positive responses to this question rose from 36% in 2012 to 42% in 2016. This may be understandable given that these grants are meant to cover basic living expenses. However, the three month dormancy rule on these accounts may encourage immediate withdrawal out of fear that monies could be clawed back.
The report shows the tremendous impact digital distribution of social grant has had on providing access to banking services to our poorest citizens. It has brought them into the formal financial services sector and allowed them access to import financial products such as bank accounts, savings products, credit and insurance.
As Sassa crafts a new grant distribution mechanism, it is important that it builds on this progress while addressing impediments to greater financial inclusion such as over indebtedness and greater beneficial use of bank accounts.
* Farai Muronda is the head of the South African Financial Inclusion Programme at the FinMark Trust.
SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.
Read Fin24's top stories trending on Twitter: Fin24’s top stories
