The Third Policy Dialogue of SALDRU and ALI SA at the South Africa at 30 Years of Democracy conference.
The third policy dialogue jointly hosted by ALI SA and SALDRU took place on 4 April 2025 at the SALDRU conference on “Reflecting on 30 years of democracy in South Africa.” The session on “Financial Inclusion and Economic Transformation” was a panel discussion exploring how broadening access to financial services can drive inclusive growth in South Africa’s economy. The panel discussion was introduced by Lynette Chen (Executive Director of ALI SA) and moderated by Professor Reza Daniels (Director of SALDRU). The panel of experts featured Gabriel Davel (Centre for Credit Market Development and former CEO of the National Credit Regulator), Refilwe Moloto (Ambassador Advisory), Mkhacani Joseph Maswanganyi (Member of Parliament, National Assembly; Chairperson of the Standing Committee on Finance), and Bobby Berkowitz (FinMark Trust). The context for the discussion reflected on what progress has been made 30 years into South Africa’s democracy on financial inclusion and its impact on economic transformation.
The panellists agreed that expanding access to meaningful financial services is seen as a catalyst to inclusive economic growth and reduced inequality, yet a “financial inclusion paradox” persists – high access but shallow usage and limited impact. The panel aimed to diagnose key challenges in the financial sector and discuss solutions to ensure that making financial markets work for all citizens supports the country’s broader economic transformation goals.
Key Challenges Identified
- High Access, Low Usage: South Africa has achieved broad formal financial access (over 80% of adults are formally served by 2020, up from around 50–60% two decades ago). However, usage of financial services remains shallow. Many people use bank accounts merely as transaction conduits – for example, in 2023 about 37% of banked adults withdraw all funds immediately after deposit, rather than saving or transacting digitally. This financial inclusion paradox (high access with limited economic impact) indicates that formal access alone hasn’t translated into meaningful financial engagement or improved livelihoods.
- Skewed Credit Distribution: The consumer credit market has grown large (about 28 million credit-active consumers with R2.38 trillion in total consumer credit outstanding). Yet, this credit is unevenly distributed – over 75% of loan value goes to high-income earners (those earning >R15,000 per month), with low-income borrowers largely limited to small, short-term loans. Small businesses and lower-income households remain under-served by formal credit. In fact, bank lending to small and medium enterprises (SMEs) has collapsed in real terms, declining ~3.1% per year for 15 years. This credit gap for SMEs is a critical challenge, as it stifles entrepreneurship and job creation needed for economic transformation.
- Household Debt and Over-Indebtedness: While credit expanded, it came with rising household debt and financial stress. Over-indebtedness levels are high – about 1.4 million consumers have entered debt counselling programs (with only ~240,000 actively paying down debt). Arrears and delinquency rates climbed, especially after economic shocks. The speakers noted that debt stress remains a concern, although recent trends suggest it may be stabilizing. High indebtedness, concentrated among the emerging middle class, poses risks to financial stability and limits households’ ability to accumulate assets.
- Persistent Structural Barriers in Finance: Despite various reforms since the 1990s, the structure of South Africa’s financial sector remains highly concentrated. A few large banks dominate, maintaining an “iron grip” on credit allocation. This limits competition and innovation in serving low-income segments. Past attempts to foster alternative models (like cooperative banks or development finance institutions) have largely fallen short – for example, cooperative banking has been a “spectacular failure” with no major community-based finance institutions emerging. Key foundational issues in the legal and financial framework persist as barriers: ineffective collateral and contract enforcement, outdated insolvency laws, and insecure property rights (e.g. in townships) were cited as constraints that prevent broader lending and asset accumulation. These structural factors have left the financial sector ill-suited to serve the majority, especially those outside the formal wage economy.
- Changing Economic Reality: The country’s economic structure has shifted in ways that challenge financial inclusion. Formal employment has shrunk (down 12 percentage points as a share of the working-age population since 2003), while informal employment and unemployment have risen (+4 and +5 points respectively). Many South Africans now derive livelihoods from informal businesses, “piece jobs,” or social grants rather than steady formal salaries. Incomes are often irregular and cash-based, making formal financial products a poor fit. FinScope data shows a stark divide in how money is received: for instance, income from informal sources (like micro-business or odd jobs) is predominantly taken in cash, whereas formal salaries and government grants are mostly digital deposits. This gap contributes to low usage of digital financial services and formal savings – many individuals in the informal sector simply operate in cash, beyond the reach of traditional banking offerings. The result is unmet financial needs and a reliance on informal mechanisms, which limits the transformative impact of inclusion.
Proposed Strategies and Solutions
Drawing on the panel’s discussions, several strategies were proposed to enhance financial inclusion in ways that support economic transformation:
- Reform Foundational Policies and Regulations: Address legal and structural barriers that hinder inclusive finance. For example, modernizing personal insolvency laws, improving contract enforcement, and enabling property ownership in historically disadvantaged areas would make it easier for lenders to extend credit beyond the elite. Such reforms can unlock credit for entrepreneurs and low-income households by allowing new forms of collateral and reducing lender risk. Policymakers were urged to undertake a comprehensive review of credit market regulations (over a decade after the NCA) to fix gaps and unintended consequences, ensuring consumer protection without unduly constricting credit to productive sectors.
- Promote a Tiered & Competitive Financial Sector: Diversify the financial ecosystem to serve all segments of society. The speakers advocated moving beyond a bank-centric model to a “tiered banking system” that includes non-bank financial institutions and community-based finance as legitimate, regulated players. This could involve supporting microfinance institutions, cooperatives, fintech startups, and informal savings groups (stokvels, burial societies) through appropriate regulation and capacity-building. By opening up essential banking infrastructure (payment systems, credit bureaus, etc.) to smaller players – an “open banking” approach – authorities can foster innovation and tailored services for low-income and rural communities. Increased competition and collaboration between banks and non-banks would drive financial products that are more accessible, affordable, and relevant to underserved groups.
- Design Inclusive Products and Improve Usage: Shift the focus from just access to active usage of financial services. Banks and insurers should develop products suited to irregular incomes and small-scale needs. For instance, better savings mechanisms (low-fee, flexible accounts) could encourage poor households to save securely even in small amounts. Micro-insurance and community insurance models could protect against common shocks (funeral cover has grown, but other insurance uptake remains very low). Additionally, credit products for SMEs and informal traders need expansion – perhaps using alternative data for credit scoring or group lending models – to fill the gap left by traditional banks. Consumer education was mentioned as a complement: improving financial literacy so that people trust and effectively use services beyond basic transactions.
- Leverage Digital Innovation: Embrace digital solutions to extend the reach and reduce the cost of financial services. Digital financial services (mobile money, e-wallets, fintech apps) can bring banking to remote or low-income populations without heavy physical infrastructure. The idea of Community Digitalisation entails deploying digital access points in communities – for example, agents or kiosks where people can deposit cash into e-money, pay bills, or remit funds cheaply. Digital platforms also enable innovative approaches like pay-as-you-go microloans or savings groups managed via apps. South Africa’s high mobile phone penetration provides an opportunity to connect more people to the formal financial system digitally. The session stressed that digital inclusion must go hand-in-hand with digital literacy and trust-building, especially for older or less-educated users. Done right, digitization can lower barriers (such as high fees and travel distances) that currently keep many transactions in cash.
- Link Social Support to Economic Opportunity: Build pathways for those on social welfare or in the informal sector to graduate into the formal economy. The GBL (Graduating Beneficiaries through Linkages) approach proposed targeting recipients of social grants (or other welfare programs) with interventions to increase their income-generating potential. For example, alongside grant payments, provide access to financial coaching, entrepreneurship training, or matched savings schemes that reward productive use of funds. By connecting safety nets to financial inclusion initiatives, South Africa can ensure that social assistance translates into longer-term economic empowerment. Similarly, supporting informal workers (who may not earn regular salaries) with tailored financial products and services can help integrate them into the mainstream economy over time.
- Strengthen Oversight and Collaboration: Finally, it was noted that achieving true financial inclusion as a driver of transformation requires ongoing collaboration between regulators, industry, and policymakers. The government (through Parliament and the National Treasury) needs to continue pushing the financial sector towards inclusion targets – for instance, monitoring banks’ progress under the Financial Sector Code and holding them accountable for serving previously excluded groups. At the same time, the private sector’s role is to innovate and take initiative in reaching new markets (within a facilitating regulatory environment). Public-private partnerships, such as sharing FinScope data insights with policymakers or pilot projects for community banking, were suggested as ways to jointly learn what works. Consistent political will, as voiced by Mr. Maswanganyi, is crucial to drive the implementation of these strategies and to ensure that financial inclusion efforts remain aligned with South Africa’s broader economic transformation agenda.
Concluding Remarks
In conclusion, the session highlighted that financial inclusion is a key enabler of economic transformation, but only if it goes beyond simply counting bank accounts and truly empowers people. South Africa’s experience over 30 years shows significant progress in expanding access to financial services, yet also reveals a need to deepen the quality and impact of that inclusion. The discussions underscored that regulatory reforms, innovative product design, and digital technologies must converge to tackle structural challenges – from the dominance of big banks to the realities of a changing labour market. By implementing the proposed solutions, financial inclusion can support broader goals like job creation, poverty reduction, and reduced inequality.
This dialogue marked the last of the SALDRU–ALI SA policy series — a collaboration rooted in the belief that rigorous research and values-based leadership must come together to address South Africa’s complex challenges. Over the course of these engagements, we created a rare space: one that welcomed disagreement, demanded intellectual honesty, and prioritised practical action. As we draw this chapter to a close, ALI SA will continue to nurture this spirit of inquiry through its Impact Leadership Dialogue platform, with future conversations aimed at translating these insights into lasting change. ALI SA will continue to host multi-stakeholder dialogue sessions on topics and actions emanating from the SA@30 conference in partnership with government, business and civil society to promote collaborative efforts and action to implement solutions to address the challenges in our country.
In the words of ALI SA Executive Director, Lynette Chen: “In moments of uncertainty, our responsibility is not to retreat from complexity but to lead into it — with courage, integrity, and a commitment to the common good.”
