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with inclusivity in mind. South Africa’s combination of a formal and an informal economy means we have to bridge the gap between the two in order for the economy to grow, and inclusivity is a principal driver for such growth. Individuals must get access to financial services products in order to enhance their standard of living.


Digital innovation and increasing access to financial services


Access to financial services in sub-Saharan Africa has largely been driven by the growth in mobile telecommunications infrastructure. Banks utilise this infrastructure for the purpose of conducting commerce and the technology’s then more broadly adopted for use by retailers and other operators.


There’s been a great deal of convergence driven by the roll-out of telecommunications infrastructure, so much so that many mobile network operators and retailers are now looking to launch their own financial services propositions. They realise that they have a chance to enhance their value proposition to customers. However, all are converging on the same consumers and attempting to gain a share of wallet.


“I feel very strongly that it should be the role of banks to partner with government, whether in South Africa or elsewhere, to ensure policies and goals are enabled through banking infrastructure.”


Adam Craker, CEO: IQBusiness, an independent management consulting firm


The role of banks in emerging markets


I feel very strongly that it should be the role of banks to partner with government, whether in South Africa or elsewhere, to ensure policies and goals are enabled through banking infrastructure. Banks can play a very critical role of enabling engagement, specifically


Large banking incumbents have partnered with telecommunications companies, non-banking financial services operators and retailers. There’s also increasing competition in the sector from new entrants, as well as from within the industry as focused propositions and new fintech competitors enter the market. These developments could be considered a threat, but if you look at the scale of the market potential and the need to bring more customers into the formal economy, they are actually an opportunity.


In South Africa, smaller, agile players have been able to enter the market with relative ease, such as Discovery Bank and fintech-enabled proposition Bank Zero. These are interesting developments and new entrants will increasingly take advantage of the lower cost of entry that technology affords. These new entrants will be able to adopt new channels, ways of doing business and philosophies, placing significant pressure on established players.


However, the resources that large players have can be used to good effect, to deliver education and build financial awareness of transactional savings and insurance-based products that enable people to build and protect wealth and improve their economic participation.


Elias Masilela, Director: DNA Economics


“If you look at the design of our lending rules, given our historical background, there’s no way we can say banks have done enough.”


The role of banks in emerging markets


The fundamental role of financial institutions is to act as an intermediary for financial resources in an economy by channeling excess capital to where there’s need and a demand, whether for consumption, investment or even speculation. How banks prioritise these demands will affect the economy and their role is to increase the efficiency of the economy by reducing search costs and reducing information asymmetries. From a policy or growth point of view, banks and other financial intermediaries must be sensitive to economic needs and identify where the debt capital demand [exists] and is most deserving.


However, banks often tend to allocate capital to where they can get the highest return at the lowest risk. In the South African environment, they prefer to provide funding for a grouping or part of the population with which they’re most familiar. Because of this, the private sector isn’t willing to support underlying economic growth, is risk-averse and takes a short- term view. Driving factors are geography, size of business, sector, gender, age and race.


While private-sector institutions are assumed to be driven by profit motive and are more concerned about risk and return, public-sector funding by development finance institutions such as the Industrial Development Corporation and the Land Bank have to take market failure into account and compensate for it.


By conducting risk assessments, doing what traditional banks aren’t willing to do, and taking the risks banks aren’t willing to take, government is


50 An Absa Investment publication


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