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CONFIDENTIAL
BANKSETA IEDP Programme 2012
The role South African Banks should play in changing the savings
culture of salaried individuals in South Africa
Revision: Final
Lucas Mogashoa [email protected] 0825744428
Lachelle van der Merwe [email protected] 0833268431
Craig Oliver [email protected] 0824466674
Syndicate Members:
Firoze Bhorat [email protected] 0828287759
Kamogelo Manamela [email protected] 0827449720
Maggie Makube [email protected] 0828384994
Syndicate Name: Leap Six (Syndicate 3)
Coach: Mark J. Peters [email protected] 0826005296
Effective Date:
14 November 2012
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CONTENTS
1.
Executive Summary .............................................................................................................1
2.
Scope ..................................................................................................................................2
2.1
Scope Statement ............................................................................................................... 2
2.2
Context ............................................................................................................................ 2
2.3
Project methodology .......................................................................................................... 3
2.3.1
Current state analysis ................................................................................................ 3
2.3.2
Benchmarking and comparative studies........................................................................ 3
2.3.3
Gap analysis and solution ........................................................................................... 3
3.
Desktop research on the determinants of the low savings rate in South Africa ...................4
3.1
GDP Growth ...................................................................................................................... 4
3.1.1
Unemployment .......................................................................................................... 5
3.2
Demographics ................................................................................................................... 6
3.2.1
Income level and stability ........................................................................................... 7
3.2.2
Wages...................................................................................................................... 8
3.2.3
Income inequality and poverty .................................................................................... 8
3.3
Access to credit, household consumption and debt/income ratio .............................................. 9
3.3.1
Debt-to- income ratios ............................................................................................. 11
3.3.2
Household consumption ........................................................................................... 12
3.4
Education........................................................................................................................ 13
4.
Qualitative Research .........................................................................................................14
4.1
The psyche of saving ........................................................................................................ 14
4.1.1
Investor Paralysis .................................................................................................... 14
4.1.2
Investor Discipline ................................................................................................... 15
4.1.3
Trust ...................................................................................................................... 15
4.1.4
Disinclination to save ............................................................................................... 15
4.1.5
Conclusion .............................................................................................................. 16
4.2
Stokvel Association .......................................................................................................... 16
4.2.1
Banks and Stokvels ................................................................................................. 16
4.3
Banks ............................................................................................................................. 17
4.3.1
Banking penetration................................................................................................. 17
4.3.2
Savings instruments ................................................................................................ 17
5.
Comparative analysis - Uganda, India & United Kingdom ..................................................19
5.1
Gross Savings as a percentage of GDP................................................................................ 19
5.2
Determinants .................................................................................................................. 19
5.3
Lessons learnt from comparative studies............................................................................. 22
5.3.1
Uganda .................................................................................................................. 22
5.3.2
India ...................................................................................................................... 23
5.3.3
United Kingdom....................................................................................................... 23
5.4
Conclusion ...................................................................................................................... 24
6.
Key Research insights .......................................................................................................25
6.1
6.2
6.3
6.4
6.5
6.6
7.
Unemployment ................................................................................................................ 25
Education and Financial literacy ......................................................................................... 25
Informal banking and group saving schemes ....................................................................... 25
Cost of savings ................................................................................................................ 25
Access to credit ............................................................................................................... 26
The paradigm shift ........................................................................................................... 26
Recommendations .............................................................................................................27
7.1
Unemployment ................................................................................................................ 27
7.2
Education and Financial Literacy ........................................................................................ 27
7.3
Cost of Saving ................................................................................................................. 28
7.3.1
Product cost structures............................................................................................. 28
7.3.2
Savings and taxation ............................................................................................... 28
7.4
Access to Credit ............................................................................................................... 29
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CONTENTS
7.5
8.
Informal Banking ............................................................................................................. 29
Business Case ....................................................................................................................31
8.1
Education and Financial Literacy ........................................................................................ 32
8.2
Product and Technological support ..................................................................................... 34
8.2.1
CreditSave.............................................................................................................. 34
8.2.2
Informal Savings Stokvels ........................................................................................ 35
8.2.3
Existing savings products ......................................................................................... 35
8.2.4
Technology Aids ...................................................................................................... 36
8.3
Financials ........................................................................................................................ 36
9.
Conclusion .........................................................................................................................38
10.
Abbreviations ....................................................................................................................39
11.
Reference List ...................................................................................................................39
12.
Appendices ........................................................................................................................41
12.1 Appendix 1 – Key Findings SWOT analysis .......................................................................... 41
12.2 Appendix 2– Summary of findings and recommendations from SWOT ..................................... 41
12.3 Appendix 3 – Culture web: Current and Future states ........................................................... 43
12.4 Appendix 4 - Detailed Financial Calculations ........................................................................ 44
12.4.1 Education ............................................................................................................... 44
12.4.2 CreditSave.............................................................................................................. 44
12.4.3 Informal Savings – Stokvels & Existing Savings ........................................................... 46
12.5 Appendix 5 – PESTLE Analysis ........................................................................................... 47
12.6 Appendix 6 – Savings instruments and Products analysis ...................................................... 49
12.7 Appendix 7 – Research inputs ............................................................................................ 51
12.8 Appendix 8 – Banking questions ........................................................................................ 51
FIGURES
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
Figure
1: South Africa’s National Savings Rate ........................................................................ 2
2: Saving Rates relative to GDP Growth ....................................................................... 5
3: Ratio of Gross Domestic Savings to GDP .................................................................. 5
4: Unemployment rates ............................................................................................. 6
5: Age Dependency ................................................................................................... 6
6: Permanent Income hypothesis ................................................................................ 8
7: South African GINI coefficient (1993 – 2008) ............................................................ 9
8: Population living with under R388 per month ............................................................ 9
9: Credit granted by Credit Type ............................................................................... 10
10: Credit Granted vs. Gross Debtors book ................................................................. 10
11: Ratio of household debt-to-savings ...................................................................... 11
12: Estimated composition of credit extended in 2010 ................................................. 11
13: Net changes in credit extension to households ...................................................... 12
14: Gross savings as a % of GDP .............................................................................. 19
15: GDP Growth ...................................................................................................... 19
16: Unemployment and per Capita income (Source: World Bank) .................................. 21
17: Population Growth ............................................................................................. 21
18: Culture Web – Paradigm Shift ............................................................................. 26
20: National Savings Programme - Framework............................................................ 33
21: Culture Web – Current ....................................................................................... 43
22: Culture Web – Future ......................................................................................... 43
23: Credit Allocated/Affordability Limits ..................................................................... 44
TABLES
Table 2 : Implementation approach ..................................................................................... 33
Table 3 : Summarised Financials ......................................................................................... 37
Table 4: Education ............................................................................................................ 44
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Table
Table
Table
Table
Table
5: Stokvels’ Financials ...............................................................................................
6: Existing Savings ...................................................................................................
7 : PESTLE Analysis ..................................................................................................
8 : Savings instruments in South Africa .......................................................................
9 : Savings Products Analysis.....................................................................................
46
46
47
49
50
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1.
Executive Summary
It has been noted that South Africans have very low levels of savings – a trend that shows little sign
of improvement. This report is a study of the role South African Banks should play in changing the
savings culture of salaried individuals in South Africa to positively influence our propensity to save.
Low savings levels have significant socio-economic consequences for South Africa. They impact
particularly on the banking industry’s capital inflows, on the economy with low levels of liquidity,
and on individuals who are less able to fund their socio-economic needs.
The problem was addressed by researching and identifying key contributors to this situation in the
local market.
Some of the key determinants identified were GDP growth, specifically
unemployment; demographics including income levels, income inequality and poverty; Access to
credit and the impact of household consumption and debt-to-income ratios; and widespread levels
of financial illiteracy in South Africa.
The research was further enriched by a qualitative analysis of contributors to the low savings rate. A
study into the psyche of saving looked at how people make financial decisions, and focused on
critical factors such as procrastination, loss aversion and inertia.
A further study looked at the contribution informal or social savings products such as Stokvels have
on the savings culture in South Africa. It was noted that while there is an estimated R44-billion
Stokvel fund value, there is evidence of their distrust of the formal banking system. In addition,
Stokvels consider the social aspect of group saving very important and generally tend to save for
specific reasons.
Lastly, the qualitative research focused on the banks themselves, particularly in respect of banking
penetration and the current savings products available to the market. It was determined that low
interest rates made saving unattractive while banks appeared to focus more on credit products. The
research concluded that slight changes to the current offerings could contribute to a significantly
improved savings culture.
Research was also conducted into the international market, specifically India, Uganda and the United
Kingdom. A comparative study was completed to understand how progress in these countries could
be applied in South Africa. It is interesting to note that while these countries had similar barriers to
saving as South Africa, they had varying degrees of success in resolving these issues by focusing on
education and customer-centric product offerings.
Based on the research conducted we determined that the following areas need to be addressed to
change the culture of saving in South Africa and create a paradigm shift: unemployment, education
and financial literacy, informal banking and access to credit. To address these areas we developed a
programme that focuses on financial literacy education, and is supported by three products
designed to encourage and facilitate saving. Technology will also be harnessed to support, educate
and assist clients to save.
This programme aims to shift our current paradigm from “I can’t afford to save”; “Banks can’t give
me what I need” and “I can get what I need right now on Credit” to a healthier paradigm of “Saving
is for me, my family, my future and my country”; “Banks have educated me on how to save and
made it easier” and “I can still get what I need on Credit (responsibly) without feeling guilty”.
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2.
Scope
2.1
Scope Statement
This project investigates the determinants of low levels of savings in South Africa and proposes ways
in which these can be addressed amongst salaried individuals.
Included is a study of why the savings solutions currently offered by the formal banking sector have
not been effective, and recommendations on how banks can improve savings levels. The study
references other emerging economies such as India and Uganda to understand the role played by
these economies in encouraging a savings culture. The UK is also referenced, with the aim of eliciting
lessons learnt from a developed economy.
Deliverables include a recommended strategy on how the banking industry in South Africa can
amend the role they are playing to positively influence a savings culture.
The project focuses only on South African salaried individuals’ savings behaviour and does not
consider that of the unemployed, government and corporations.
2.2
Context
Savings plays a role as a critical ingredient for economic growth and a national buffer against
international capital fluctuations. Literature suggests that South Africa has a low national savings
rate when compared internationally (Figure 1), mainly as a result of a declining trend in domestic
savings in recent years.
Due to our low savings rate, South Africa relies on foreign capital inflows to finance its capacity for
future growth. Given the uncertainty of capital inflows, such dependency is unhealthy, since
investors often withdraw their funds at the slightest hint of bad news, which may hinder economic
growth.
While Government and Corporations are saving, the South African Reserve Bank reported that
households had started to “dis-save” between 2006 and 2011. The state of South African household
savings is therefore a cause for concern and poses a challenge for key stakeholders (e.g. the Banking
Industry) who want to provide initiatives to address this challenge.
South Africa's National Savings Rate as a % of GDP
26%
16%
6%
-4%
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Total Savings
Corporate
Household
Government
Figure 1: South Africa’s National Savings Rate
Source : South African Reserve Bank And World Bank Staff Calculations
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The socio-economic implications of a low savings culture are debilitating on a number of fronts,
including those faced by:



Banks – An inability to attract funding through low cost savings vehicles results in a heavier
reliance on capital inflows from portfolio managers. These are often costly, volatile and do not
satisfy the liquidity requirements for Basel regulations.
The Economy - The government relies on excess funds over current spend to fund infrastructure
development (power stations, roads etc.) and to invest in social upliftment initiatives (e.g.
education, health, and care for the aged).
Individuals - A culture of low savings means that individuals cannot fund their socio-economic
needs. This results in an increased burden on the government to provide social support rather
than infrastructure development which supports GDP growth and resultant employment.
Reliance on foreign investment is heightened which increases the country’s debt burden. In this
case, often the only recourse is to increase taxes, which in turn exacerbates the initial dilemma.
To clearly articulate the situation regarding these savings culture issues, a detailed PESTLE analysis
was conducted, as indicated in Appendix 5, with a view of ensuring that all aspects influencing a
savings culture of South Africans are considered.
2.3
Project methodology
The approach outlines below was used to solve the problem outlined in the scope. A full list of
research inputs can be found in Appendix 7.
2.3.1


Current state analysis
Desk research and literature reviews were conducted in order to illustrate the extent of the SA
problem and how this is measured (e.g. using Reserve Bank bulletins, SASI, Old Mutual BDO
other Surveys ), with specific reference to households and available Bank products
Focused desk research was conducted on targeted household income segments to determine
current savings rates and future potential (segmentation analysis)
2.3.2
Benchmarking and comparative studies
Desk research and literature reviews were undertaken in order to:



Understand the determinants of household savings in emerging economies such as India and
China, with the aim of learning from these economies;
Review savings rates in Uganda to identify opportunities to explore on field visits
Investigate developed markets in the UK to explore potential lessons-learnt.
2.3.3
Gap analysis and solution
This was undertaken in order to:



Identify the gaps and constraints stemming from the above studies
Summarise findings in agreed format and workshop gaps and constraints using a SWOT analysis
and other tools
Identify possible solutions and strategies to close the gaps
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3.
Desktop research on the determinants of the low savings rate in South
Africa
In order to address the low levels of saving in South Africa, we must first determine why the level of
saving is so low. In order to do this, we need to fully understand all of the key determinants of saving
and to analyse how South Africa is performing against each of those determinants. Each of these key
determinants is outlined in the executive summary below, with a more detailed analysis following
from Section 3.1 below.
The first pair of determinants is GDP growth and unemployment. S.A’s GDP growth is not sufficient
to stimulate employment, a key factor in improving levels of disposable income and hence savings.
Unemployment in South Africa is currently at 25%. The result is an increased burden of dependency
on the economically active, which further contributes to the low levels of saving.
Another determinant of savings in South Africa is the demographic characteristic of the nation.
South Africa has a very young population who are predisposed to spending rather than saving. Also
there is a high dependency on the middle-aged population, who are the most economically active.
The result is that this sector of the population is over-burdened by having to look after the younger
and older members of society, thus reducing the propensity for this sector to contribute to savings.
Income levels and the stability thereof is yet another determinant. As many people in South Africa
do not have comparably high or stable incomes, it becomes very difficult to anticipate their cash
flow and as such, they find it difficult to save.
While South Africa has seen real wage growth, inflation has also been high. This has eroded workers’
purchasing power, which in turn has inhibited their ability to save.
Income inequality and poverty diminishes savings and South Africa has an extremely high level of
income inequality, as well as a high number of people living in poverty. As people struggle to survive
it does not leave much to save.
Access to credit, household consumption and debt-to-income ratios is another determinant
examined. South Africans have enjoyed unprecedented access to credit. These increased levels of
access to credit have fuelled consumer consumption and have dis-incentivised the need to save,
since people can simply borrow money to meet their needs. Further to this is the level of household
consumption, which is driven partly by need but largely by aspiration. People are fully leveraged,
having to fund the debt that is financing their very conspicuous consumption. These high debt-toincome ratios leave little or no money for saving.
Lastly, despite an advanced financial sector, there still exists a widespread level of financial illiteracy
in South Africa. This has led to a rising trend of unsustainable consumer behaviour, culminating in
high levels of debt and low levels of savings.
3.1
GDP Growth
GDP growth is crucial to emerging economies, as growth provides employment and thus creates the
capacity for savings. It also allows the Government to focus spend on infrastructure development,
rather than on the social upliftment of the unemployed (and the families supporting them).
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Countries with average annual GDP growth >6% all achieved domestic savings rates in excess of 20%
(Figure 2).
Savings Rates in countries with GDP>6%
60%
40%
20%
0%
Botswana
China
India
GDP Growth
Korea
Singapore
Median
Gross Domestic Savings
Source: World Bank
Figure 2: Saving Rates relative to GDP Growth
South Africa’s GDP growth remains well below the targeted range of 6 – 7%. Our domestic savings
rate has trended around zero since 2000 (Figure 1 in Section 2.2 above), with total savings well
below global domestic rates.
India and China have experienced GDP growth above 6% since 1980. Gross domestic savings by 2009
were at a level close to 50% in China and 30% in India (Figure 3), indicating a strong correlation
between GDP growth and savings performance.
It is estimated that GDP at SA’s targeted rate of 6% would create 5 million jobs – and as studies of
these successful emerging market economies show, job creation contributes towards the
establishment of the means to save.
India GDP Growth & Savings correlation
60%
10%
50%
8%
40%
30%
20%
1975
1980
1985
1990
GDP Growth (3 yr moving avg)
1995
2000
2005
GDP Growth
GDP Growth
China GDP Growth & Savings correlation
16%
14%
12%
10%
8%
6%
4%
2%
0%
25%
20%
4%
15%
2%
0%
0%
Gross domestic savings to GDP
30%
6%
10%
2009
35%
10%
5%
0%
1975
1980
1985
1990
GDP Growth (3 yr moving avg)
1995
2000
2005
2009
Gross domestic savings to GDP
Figure 3: Ratio of Gross Domestic Savings to GDP
Source: World Bank
3.1.1
Unemployment
South Africa’s unemployment rate of 25% (33.4% including discouraged workers) is well above its
BRIC counterparts as seen below (Figure 4). Of this figure, unemployed individuals below the age of
25 years make up an alarming 51% of the population who are dependent on the economically active.
This situation renders remote the ability to save of even those who are actively employed.
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Unemployment in 2010 in BRICS
30%
<25yrs 51%
25%
20%
15%
10%
<25yrs 17%
<25yrs 18%
5%
0%
Brazil
South Africa
India
China
Russia
Figure 4: Unemployment rates
(Source World Bank Survey on SA Savings and Investment)
3.2
Demographics
A key factor influencing savings in South Africa is the demographics characteristics of the nation. The
Life-Cycle Hypothesis (LCH) is a theory concerning the spending and saving behaviour of individuals
over their lifetime. It suggests that young people are likely to spend more than they save, since they
borrow against future income as they seek personal financial growth. The middle aged population
tend to save more than they spend as they try to secure their future and their family’s futures, while
the aged are in the process of ‘dis-saving’ as they use their accumulated savings to fund their
retirement. Therefore it stands to reason that the age composition of the population could impact
the level of savings of the nation.
The age dependency ratio is the ratio of dependents, i.e. people younger than 15 years or older than
64 years relative to the working population (individuals aged between 15 and 64 years). If we apply
the theory of the LCH, then it would also stand to reason that an increasing dependency ratio would
lower the nation’s potential saving rate.
Age Dependency Ratio
60%
50%
40%
9%
8%
20%
26%
11%
29%
10%
30%
20%
10%
46%
29%
25%
22%
US
UK
Euro
37%
48%
29%
19%
20%
0%
SA
Brazil
>64yrs
<15yrs
China
India
Russia
Figure 5: Age Dependency
(Source: World Bank survey on South African saving and investment)
Typically the propensity to save increases when the working population is relatively high compared
to the younger or older segments. However, South Africa’s dependency ratio is relatively high at 54%
compared to other countries (Figure 5). Particularly noteworthy is the fact that we have a very
young population of 46% who are dependent on the working populace. Compared to developed
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economies whose young population is below 30%, a high youth dependency places pressure on the
nation to provide education and create employment opportunities.
South Africa’s current unemployment rate of 25% suggests its inability to absorb young people into
the workforce, which further extends their dependency on income earners. Developed economies
conversely experience problems with an ageing population which increases public pension liabilities
and places further pressure on state finances.
While India has a similar dependency ratio to South Africa, it does have a higher GDP growth and
higher savings rates. The primary reason behind this difference in saving is the much lower level of
unemployment. India is in a better position to absorb new entrants into the workplace and is
therefore able to increase the portion of the population that has a propensity to save, thereby
reducing the number of dependents in the economy.
The youth dependency ratio in China has dropped from a high of 60% to just 28%. This was a direct
result of China’s one child policy. It did coincide with an increase in the elderly dependency ratio and
the net effect of these changing dynamics was a steep increase in savings from 5.67% in 1979 to the
current 27%.
Some of the reasons for this could include the fact that child-related expenses were reduced, which
made more income available for savings. Also, because Chinese people cannot necessarily rely on
children to take care of them in their old age, they plan their retirements carefully by saving for this
eventuality.
3.2.1
Income level and stability
The level and stability of income is another key determinant of saving. Typically the more disposable
and consistent income people have, the more likely they are to save. However, if an individual has
an erratic or low-level source of disposable income e.g. from odd jobs, they are highly unlikely to
save.
The Permanent Income Hypothesis (PIH) highlights how the savings rate is determined by income
level and income stability. The theory suggests that people base their level of consumption and
savings on anticipated lifetime income. It also suggests that short-term changes in income have little
impact on consumption and savings, and that in order for savings and consumption to be impacted,
income needs to have longevity and stability.
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Figure 6: Permanent Income hypothesis
(Source: World Bank survey on South African saving and investment)
The above graph (Figure 6) illustrates the propensity to consume relative to changes in disposable
income. We see that South Africa has the highest propensity to consume versus all the countries
analysed, coupled with the lowest growth in disposable income.
This is of particular concern when viewed in conjunction with other developing economies such as
Brazil, Russia, India and China, all of whom have shown growth in real disposable income and have
considerably lower levels of consumption. This means that not only are we as a nation not saving,
but we are using debt to fund our consumption.
3.2.2
Wages
While South Africa has seen real wage growth, it has been driven by a militant workforce that is
predisposed to consumption – and which demands above inflationary increases in wages to fund
that consumption. Employers often reach settlements with unions at increased levels that defy
economic rationale.
As this cycle continues, two things happen that exacerbate the situation. Firstly, the higher cost of
production fuels inflation, which in turn feeds back into further wage demands by workers.
Secondly, employers are discouraged to employ, and given the increasing cost of employment, this
can, in effect, fuel the unemployment rate. This interaction between wages, employment and
inflation ultimately contributes to the state of low savings in the economy.
3.2.3
Income inequality and poverty
Income inequality and poverty also reduce the incidence of savings in households, as any disposable
income is spent on basic necessities. South Africa has an extremely high level of income inequality as
measured by the GINI Coefficient (Figure 7).
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69.0%
68.5%
68.0%
67.5%
67.0%
66.5%
66.0%
65.5%
65.0%
64.5%
68.3%
68.5%
68.6%
68.5%
68.3%
68.2%
67.8%
67.4%
67.2%
68.5%
67.8%
67.4%
67.0%
66.6%
66.5%
66.0%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Figure 7: South African GINI coefficient (1993 – 2008)
(Source: World Bank survey on South African saving and investment)
At 66%, South Africa has one of the highest GINI Coefficients in the world – significantly higher than
other comparable emerging economies and developed economies. This signifies that South Africa
has a large percentage of people living below the poverty line.
Percentage of population living under R388 p/m (in
2008 Constant Rand)
60.0%
40.0%
20.0%
0.0%
Figure 8: Population living with under R388 per month
(Source: World Bank survey on South African saving and investment)
Whilst the number of people living below the poverty line has reduced since the turn of the century
(Figure 8), this has been a result of government disbursement of more social grants rather than
organic income growth through employment.
Such welfare resources place a huge burden on government resources and as such, have had to be
financed through higher taxation. An increase in taxation erodes disposable income which inevitably
leads to a lower level of savings. This is further exacerbated by grant recipients who have a higher
propensity to consume rather than save.
3.3
Access to credit, household consumption and debt/income ratio
According to the national credit Regulator of South Africa, unsecured loans grew by nearly 60% in
both the third and fourth quarters of last year (2011). Unsecured credit as a percentage of total
credit granted continued to grow from 21.45% for the quarter ended September 2011 to 24.58% for
the quarter ended December 2011 (Figure 9).
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Agreements R'000
2010-Q4
2011-Q1
2011-Q2
2011-Q3
2011-Q4
2011-Q4 %
Distribution
% Change
(Q4/Q3)
% Change
YoY
Mortgages
26 867 971
24 759 915
25 448 516
30 278 386
29 313 825
27.2%
-3.2%
9.1%
Secured Credit
28 120 840
27 447 578
26 961 813
30 779 506
33 394 502
31.0%
8.5%
18.8%
Credit Facilities
10 245 638
10 431 232
12 064 178
14 882 323
16 596 388
15.4%
11.5%
62.0%
Unsecured Credit
16 834 873
16 694 204
18 954 134
21 213 694
26 451 931
24.6%
24.7%
57.1%
Short Term Credit
1 462 223
1 420 539
1 650 746
1 745 095
1 847 546
1.7%
5.9%
26.4%
83 531 545
80 753 468
85 079 387
98 899 004
107 604 192
100.0%
8.8%
28.8%
Total
Figure 9: Credit granted by Credit Type
(Source Consumer credit market report Q42011)
The value of credit granted to consumers increased by R8.70 billion (8.80%) from R98.90 billion for
the quarter ended September 2011 to R107.60 billion for the quarter ended December 2011 (Figure
10). The size of loans also increased, with consumers are now able to access loans of up to R150 000,
payable over seven years.
R billion
110
1 350
100
1 300
1 250
90
1 200
80
1 150
70
1 100
60
1 050
1 000
50
2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Gross Debtors Book
Total Credit Granted
Figure 10: Credit Granted vs. Gross Debtors book
(Source: Consumer credit market report Q42011)
A financial wellness index recently launched by Momentum, the Bureau for Market Research and the
University of South Africa showed that 5% of local households fall into a category called "anchored
unwell." Consumers in this category have very little chance of being extricated from debt without
outside intervention such as debt counselling. A further 48.5% of households fell into the “drifting
into unwell” category which refers to households in an unstable debt position that could become
entrenched.
A recent article in the Business Day suggests that this growth in the unsecured lending market is
fuelled by banks scrambling for a bigger share of the market due to shrinking demand for mortgages.
This growth is so much of a concern that the Reserve Bank has launched an enquiry into the
perceived boom in unsecured lending.
Anecdotal belief is that much of the unsecured credit extended in South Africa is being used to
finance day-to-day expenses and "aspirational" or discretionary spending, once again fuelling the
inability to save.
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3.3.1
Debt-to- income ratios
The increased propensity of South Africans to acquire debt and the declining propensity to save is
reflected below (Figure 11). It shows the ratio of household debt and household savings to
household disposable income – which is current income less direct taxes.
Figure 11: Ratio of household debt-to-savings
The average level of household debt has increased from 55% in the early 2000s to 80% in 2008,
settling at just over 78% in 2010. At the same time, the ratio of disposable income that is saved
declined from 2.7% in 1994 to a dis-saving of 1% in 2008. This trend continued in 2009 and 2010 by
around 0.3%.
It can be argued that these low levels of saving mean that households have limited buffers against
unforeseen financial problems such as job losses or medical expenses. As such, they risk becoming
debt stressed or over-indebted while further increasing the need for lines of credit.
Figure 12: Estimated composition of credit extended in 2010
(Source: SARB quarterly bulletin via Quantec)
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The table above (Figure 12) indicates the composition of credit available to each income/LSM
grouping by credit type and shows that consumers in LSMs 1 to 3 obtain almost 85% of their credit
through a combination of furniture loans and store cards. Mortgages account for around 62% of the
total credit advanced to people in LSMs 7 to 9 and unsecured loans make up more than a quarter of
the credit advanced to consumers in LSMs 4 to 6.
The above trend reflects the inverse correlation between rising debt and declining savings. Low
levels of savings means that there is no buffer to cater for unforeseen expenditure which often
results in failure to meet debt repayment. Consumers in LSM 4 to 6 are most at risk with exposure
evident across most of the credit categories.
3.3.2
Household consumption
Recent statistics show that South Africa is fast becoming one of the most expensive countries in
which to live. Contributors to this situation include Eskom increases; high levels of taxation;
Government linking rates and taxes to the market value of houses; toll roads and petrol prices
(incidentally, Namibia pays + - R 7.50 per litre and they get their fuel from S.A.).
Consumer credit enables households to bring forward their purchases of goods and services. These
purchases may be designed to generate additional income in future – such as the financing of
education, or the provision of working capital for start-up businesses – or may be purely for
consumption purposes – such as spending on food, home appliances and household furniture.
Figure 13 below, shows the ratio of net new credit extension to the household sector as a
percentage of the final consumption expenditure by households for the corresponding period. It
provides some indication of the extent to which new consumer credit is being used to finance
current economic activity by households.
Figure 13: Net changes in credit extension to households
This graph reflects a significant increase in the average household’s propensity to take on additional
debt to finance their consumption between 2002 and 2006 – from about 2.5% to 12.6%. This was
followed by a dramatic fall back to 2% in 2009, and slight recovery in 2010 to 4.5%.
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Focus groups in a NCR study revealed that the motivation for obtaining credit is driven by social
aspiration. This, coupled with the propensity for households to take up additional credit to finance
household consumption, appears to suggest that there is lack of available funds or disposable
income to facilitate saving.
3.4
Education
Despite the rapidly changing and complex financial decisions confronting individuals today, there still
exists a widespread level of financial illiteracy in South Africa. This has led to a rising trend of
unsustainable consumer behaviour, culminating in high levels of debt and low levels of savings.
Low financial literacy is correlated with poor savings. Education is a strong predictor for wealth since
it improves individuals’ money management behaviour, spending habits, use of financial services
and ultimately, may motivate individuals to save.
In comparison to its BRIC counterparts, South Africa was ranked below the rest of the member
countries in the VISA 2012 study of Global Financial Literacy. Brazil was ranked 1st, China 16th, Russia
19th and India 23rd out of 28 markets. It is clear that countries that exhibit higher financial literacy all
show higher saving rates, indicating a strong link between financial literacy and wealth
accumulation.
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4.
Qualitative Research
4.1
The psyche of saving
Emotions and intuition play an important role in people’s decision-making processes, often resulting
in systematic and predictable errors (Benartzi, 2011). People use “two minds” to make decisions,
namely the following:


“Intuitive” mind: this makes fast, effortless and automatic decisions, which can lead to wise
decisions but at times result in irrational and poor financial decisions. For example, if we have to
make a choice between buying a foodstuff that is “98% Fat Free” and another that is “Containing
2% Fat”, we will choose the first option, as we respond negatively to the word “Containing Fat”
and positively to “Fat Free” even though the two are identical.
“Reflective” mind: this makes slow, effortful and conscious decisions which are mainly rational
and thoughtful, and can be used to correct mistakes made by the “intuitive” mind.
Other critical aspects that affect people’s aversion to saving include:



Procrastination: The promise of investing in the future without putting mechanisms in place to
ensure that this is done when the future arrives.
Loss aversion: The fear of losing out on ones investments either from fees or non-performance
of the investment vehicle. The focus is on what may be lost rather than on what may be gained.
Inertia: Knowing that saving for the future is good but finding it difficult to do it today.
A number of tools have been developed to influence these negative behaviours of people, and they
specifically focus on addressing the following:




Investor Paralysis: The fear that the recent financial crisis of 2008 might affect investors, as well
as the fear of providing wrong information by Financial Advisors
Investor Discipline: The herd mentality of humans whereby we religiously follow the principles
of “buy high, sell low” in the markets, without truly understanding the fundamentals leading to
these actions, and thus making impulsive decisions.
Trust: Key ingredients to displaying trust are the competence of financial advisors, as well as
their understanding of their clients, so that they may be in a position to support them in times of
need, as well as keep regular contact at all times.
Disinclination to save: The desire for instant gratification, the inability to see the rationale for
saving for retirement when one cannot envisage why they should be spending money for a
period they cannot easily relate to, lead people to have a strong disincentive to saving now.
The following are the challenges faced and techniques used to improve financial decisions:
4.1.1
Investor Paralysis
Investors are afraid of saving for the future, as they fear the possibility of the repeat of the 2008
financial crisis, and they face the potential of losing out on bull markets. Advisors are also fearing the
risk of providing wrong advise against the chance of being right. The tool suggested to assist with
this dilemma is called SMarT (Save More Tomorrow). This tool addresses issues related to the
following psychological factors:
 Procrastination: where clients are encouraged to pre-commit to increase their savings rates in
the future, which has no visible impact on their take home pay.
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

Loss Aversion: the clients’ future commitments are linked to the anniversary of their pay
increases, thus avoiding the sensitivity of a loss, as the impact on their take home pay is very
minimal
Inertia: since the committed increase in contributions happens automatically until a pre-agreed
ceiling is reached, inertia issues are overcome as what people know should be happening
happens automatically each year.
An example of a situation where SMarT is applicable, is when employees participate in contributing
towards a retirement plan. Most employees fail to participate in these plans, in spite of the
organisation contributing matching funds for every extra contribution that the employee makes.
What SMarT does, is to link an employee’s increased contribution to their salary increase, to ensure
that there is no impact on the employees take-home pay. Furthermore, the employee is committed
in advance for the annual contribution increases which are aligned to salary increases. This ensures
that when the increased contributions are effected, the employee does not encounter any loss, and
thus they benefit by both their increased contributions and those of the employer. This method
simultaneously tackles the Procrastination and the Loss Aversion factors.
4.1.2
Investor Discipline
There is a lot of information and hype in the financial industry around the performance (and lack
thereof) of financial instruments, and these lead clients to start behaving using a “herd instinct”.
Financial advisors must assist clients to understand the bigger picture related to investment
decisions, come up with understandable actions plans that will assist clients to determine when best
to invest (or disinvest), and for both (Client and Investor) to commit themselves to following through
with the agreed plans of actions (whilst understanding the positive and negative consequences of
decisions taken). They need to ensure that clients are not affected by the “noises” in the crowd, so
that they do not become susceptible to errors.
This approach will ensure that clients and advisors have a working relationship that will be based on
mutual understanding and with investment decisions made based on proper thought-processes, as
well as in empowering the client to make decisions on time should there be material changes in
market forces.
4.1.3
Trust
The 2008 financial crisis negatively impacted the trust that clients had in banks, thus to regain that
trust, banks need to exercise patience, humility and hard work to win back the trust. The following
have been identified as key tenets that advisors need to know about client relationships (which have
two components – the technical and the personal):


Banks and their employees must actively demonstrate their competence in the services they
provide; and
Banks and their employees must have empathy for their clients, especially in tough times.
Constant engagement and empowering of clients is critical for the survival of this relationship.
4.1.4
Disinclination to save
When people save for retirement, the current feeling is like giving money to a stranger years into the
future, without grasping the importance of doing so. A tool referred to as the “Behavioural Time
Machine” has been developed to make people see themselves as they are now, with their projected
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future images at different ages (and different expressions – from very sad to very happy, depending
on the level of savings from low to high). When people saw themselves on these images, their desire
to save improved based on the future self they saw i.e. for a happier future self, people saved more
than when the future self was sad.
4.1.5
Conclusion
Banks need to consider the behaviours of their clients whenever they engage them – from the initial
advisory touch-points, to the customisation of products and services – as well as have an overall
understanding of the issues that make specific clients tick. Financial Advisors (and customer-facing
Bank employees) need to be empowered with the skills and tools to assist them in engaging with
clients, so that they are in a position to provide appropriate services and advice. This will increase
the trust clients have for banks, and result in clients improving their savings behaviour.
4.2
Stokvel Association
A recent study by African Response estimated the fund value of Stokvels at R44-billion, indicating
that more than 50% of Stokvel Members in the mass market do not have a bank account.
Stokvels continue to thrive and evolve in the presence of banks because:




The social aspect of Stokvels is appealing
Collective savings enables clients to afford necessities and accumulate lump sums for special
occasions, white goods, holidays, etc.
Bank charges can be avoided
Banks do not offer need-specific finance
Community-based banking is a culture in townships and social activities are the highlight of many
Stokvels. Stokvels operate on trust; that each Member will continue to contribute after their pay
out. Members provide assistance to one another beyond just financial, i.e. Members help out during
weddings and funerals. There are, however, challenges in the form of:




late payments
low contributions
safety of contributions - many Stokvels have lost member contributions due to theft and fire
Unavailability of venues and gossiping between Members.
4.2.1
Banks and Stokvels
Banks have tried to attract Stokvel funds by offering low or no deposit fees, providing SMS
withdrawal alerts and lucky draws. Interviews revealed that members feel that:




Product offerings are not need-specific (savings for holidays, special occasions, etc.)
interest rates are low and opening processes complicated
They need assistance with providing transaction histories i.e. proof of deposits, etc.
Formal banking environments are impersonal and members are not respected.
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4.3
Banks
4.3.1
Banking penetration
Interviews conducted with Banks, as per appendix 8, have shown that currently, low or zero interest
rates offered by many local banks to ordinary customers makes saving an unattractive prospect. It
would appear that banks are concentrating more on creating credit offerings than encouraging
saving by providing products such as access bonds (that is, access to equity in home loans),
mortgage bonds and vehicle finance without deposits. Access to credit has increased since the late
1990s – primarily secured credit to finance house purchases, as well as unsecured credit – whilst the
household savings rate has fallen steadily over time.
As pointed out by Adams and Vogel (1986), easy access to credit can have the unintended effect of
discouraging savings. Credit weakens the case for deferred consumption, thereby reducing the need
to save. The World Bank ‘Doing Business 2010’ report ranked South Africa as the second easiest
country to get credit – out of a group of 183 countries worldwide. South Africa was second only to
Malaysia, and ahead of developed countries including Australia, the United Kingdom and the United
States.
The low or no interest on savings accounts by banks has led to many South Africans to put their
savings into other parts of the financial services sector (dominated by long term insurers, asset
managers and institutional investors) in the form of retirement savings. This, according to a 2012
National Treasury report, constitutes nearly 60 per cent of South African household savings.
To address the low propensity to save, banks could look at increasing the interest rate on household
deposits to make it more attractive for customers to invest at a bank. It may also be mentioned that
whilst different products may make a difference, there is no ‘one size fits all’ solution to saving;
rather what is needed is a cultural change to improve the savings behaviour of South Africans.
4.3.2
Savings instruments
Banking networks represent the leading distribution channel for savings and are in a position to
persuade their regular current account customers to make effective use of the broader suite of
financial services – including savings.
Low-income households saving through the formal sector tend to use low-cost bank accounts and
savings products that provide liquidity. Some low-income households also save through retirement
funds, particularly provident funds, although their rates of preservation are very low. Higher-income
households generally use a wider variety of formal channels, including life insurance policies,
retirement annuities, pension and provident funds, residential housing and collective investment
schemes.
During the period 1999-2010, nominal savings flows to various asset classes attributed to
households were reasonably high (refer Table 9, Appendix 7).
Bank offerings, as highlighted in Table 10, Appendix 7, indicate a dis-incentive to save created by
low interest-bearing products. While some of these products offer tiered rates, they are still
considered to be low. The accounts are all fully transactional and are typically used as such. Most
Savings Accounts are accessed through ATM/debit cards (Visa Electron or Maestro) and through
Internet, Telephone and Cellphone banking. Funds are available immediately, as opposed to
investment vehicles where a notice period is required.
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The products are functionally slightly more limited than a cheque or current account as there is no
access to overdrafts, cheque books or cheque cards. The customer decides how much and at what
frequency money is deposited and / or withdrawn. Access to savings is good as long as FICA
regulations are complied with.
Savings accounts are very “safe” as banks will guarantee the savings (plus interest), which is not the
case when it comes to investments. From a cost perspective, other than an opening deposit,
customers do not have to pay to open a savings account. Depending on the savings account product
chosen, a minimum balance may have to be maintained in the account.
Customers are however, charged for transactions such as depositing money and making
withdrawals. At some banks these charges fall away if a certain balance is maintained in the account.
This can range from R5 000 to R10 000.
In summary, we can conclude that while savings products are plentiful and fairly accessible, there
are opportunities to review interest rates. In addition, Banks could also look at making products less
‘transaction accessible’ by managing behaviour through costs structures, such as the creation of
tiered interest models linked to balances maintained. This could then fund better interest rates.
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5.
Comparative analysis - Uganda, India & United Kingdom
A comparative analysis of savings across Uganda, India and the United Kingdom was undertaken
with the aim of establishing whether lessons learnt from these countries can be applied in South
Africa. We found that while many of the determinants mirror problems experienced in South Africa,
these countries’ approaches to improving the situation have met with success.
5.1
Gross Savings as a percentage of GDP
40%
Gross Savings as a % of GDP
34%
20%
19%
16%
12%
0%
2007
2008
2009
2010
Uganda
United Kingdom
South Africa
India
Source: World Bank
Figure 14: Gross savings as a % of GDP
Savings rates across Uganda, United Kingdom and South Africa reflect close correlation; however
India has achieved a significant turnaround (Figure 14). 70% of India’s savings comes from the
household sector, which has seen growth from a level of 8.6% in 1951 to 33.7% by 2010.
5.2
Determinants
GDP Growth
7%
6%
7%
3%
1%
2007
2008
2009
2010
1%
2011
-5%
Uganda
South Africa
India
UK
Source: World Bank
Figure 15: GDP Growth
GDP growth: This has already been established as a major contributor to South Africa’s poor savings
culture, and whilst South Africa continues to struggle to lift GDP growth above 4%; Uganda has
averaged growth of 6.9% since 2007 (Figure 15). Levels above 6% generally indicates a propensity for
job creation, yet Uganda’s savings rate, whilst marginally better than that seen in South Africa, has
not benefitted. This is due to government policies which have favoured investment and related
exports in the telecommunication industry (accounting for 53% of Uganda’s GDP) over investment
into labour intensive industries (i.e. Agriculture which contributes only 22%).
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India’s average GDP growth by comparison has tracked close to that of Uganda, but savings as a
percentage of GDP is exponential. While it is true that GDP growth in India has driven up income
levels, which in turn has facilitated the ability to save, banks in India embarked on a program of
“Financial Deepening.” This, in essence, is the improvement of financial inclusion and the
accessibility to formal financial instruments. While there's a high degree of urbanisation, a significant
portion of the population in India remains rural and agricultural. Outside of the urban areas people
do save, however they would primarily save in the form of ‘physical savings’ (investing in property
and other tangible assets was considered saving by many). India’s “Financial Deepening” programme
was achieved in two ways:

The first was to ensure a more pervasive distribution of banks in terms of where they were
represented. Having more branches available to rural communities enables those communities
to access formal financial saving instruments. Increasing small savings through instruments such
as mutual funds and pension schemes has been a critical component to India's saving success.

The second was by increasing financial intermediation, the extent to which financial institutions
bring borrowers and investors together that leads to the deepening of the financial system.
Financial deepening and household savings are positively correlated; therefore a higher level of
intermediation through financial institutions increases the level of financial savings. Through
driving awareness amongst the general population (especially in the rural areas of India) of
saving instruments such as mutual funds and pension schemes, financial institutions in India
have been very successful at financial intermediation.
UK GDP Growth between 1995 and 2007 was led by consumer spending, a rise in borrowing as well
as by the government reducing public ownership and containing the growth of social welfare
programmes. The UK experienced poor economic growth performance in 2008 and 2009 due to
recession, and in 2011 with GDP growth of 0.7% which was influenced by the rise in household
consumption, a fall in investment by 0.6%, low contribution of 1% from net exports and a 1.2% fall in
the production industry output.
UK Gross Savings fell to 12.5 % by 2009 and was reported at 7.7% in 2011, driven by the increase in
household expenditure and partially offset by increased wages and salaries and net property
income. UK household debt as a proportion of GDP is reported as high, a serious problem at
individual level. Research reported the level of real household disposable income decreased by 0.2%
and that there are 6.2million ‘vulnerable’ households, of which 4.3 million have low or no savings in
the UK.
UK Household Savings increased between 2008 and 2009 and began declining due to low interest
rates, low inflation, excessive lending by banks to the household sector, loose credit conditions, high
asset prices and the economic boom. The Household Savings Ratio increased to 7.7% in 2011 and
was reported at 7.4% in Q2 of 2012 as a result of the increase in households’ real disposable income,
which rose by 1.2%. The household decision to save or spend is dependent on their expectation of
future economic growth and easy access to credit. Household saving increased due to, among
others, uncertainty about future positive growth prospects, non-availability of credit economy,
increased job uncertainty, a decrease in net financial wealth, and lower expected future income.
Contributors to lower savings in the UK was as a result of the rise in debt and the decline in real
interest rates, which reduced the return on savings and redistributed income from savers to
borrowers. Increasing house prices increased collateral values and reduced the incentive to save,
and relaxed lending conditions and increased credit availability in the financial sector encouraged
borrowing for consumption.
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Unemployment and Age Dependency: the debilitating impact of South Africa’s 54% dependency
ratio on saving has been documented above. While the absence of GDP growth and related job
creation influence in the number of dependents reliant on disposable income of the economically
active, population growth plays a key role (Figures 16 and 17):
Unemployment
27%
7% 26%
4% 25%
24% 24%
23%
4%
6%
4%
2%
SA
8%
22%
21%
0%
2007 2008 2009 2010 2011
Uganda
India
UK
South Africa
Figure 16: Unemployment and per Capita income (Source: World Bank)
Population Growth
4%
3.2%
3%
2%
1.4%
1.2%
0.7%
1%
0%
2007
Uganda
2008
2009
South Africa
2010
India
2011
UK
Source: World Bank
Figure 17: Population Growth
India’s population growth rate has declined since early 1980’s. Now that a more aspiring, literate
and tech-savvy young person is entering the job market, they are more readily absorbed into the
formal economy. This has helped India to improve employment levels and thus reduce the age
dependency ratio. At the heart of this is the emphasis that the government and society place on
education. Compared to other BRIC nations India is producing a more educated and better skilled
workforce. A skilled workforce coupled with a favourable labour environment makes India an
attractive destination for foreign companies, further driving growth and employment. Increased
employment means more people have more disposable income which in turn is available for saving.
By comparison, Uganda’s population of 33m has grown at a rate of 3.2% since 2000. Government’s
promotion of continued growth has seen high reproduction rates and the average child ratio per
family has grown to 7. With low levels of investment into labour intensive industry, it is unlikely that
government will have the infrastructure in place to put this future labour force to productive use in
growing the economy. This is already evidenced by a 32% youth unemployment ratio. South Africa’s
population has similarly continued to grow, albeit at a much lower and more marginal rate. As
reported this has resulted in unprecedented unemployment levels.
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While the population growth in the UK remained stable over the years, unemployment increased
sharply during the financial crisis, rising by more than 2.5% over the household expectation of
unemployment. The increase in unemployment rate continues to be a concern even during 2012. In
2011, the unemployment rate was reported at 7% and increased to 8.4% in Q2 of 2012, the highest
rate since 1995. The impact of unemployment is noticeable in the 16-24 age brackets (currently
21.9%) and in the increase in unemployed women. However, the increase in unemployment and low
future income had a positive effect on consumers as it led households to be more cautious and
encouraged them to increase their savings and cut consumption.
Access to credit & household loans consumption: South Africans’ reliance on credit to fund
consumption expenditure and the resultant impact on debt to income has been discussed in Section
2. Whilst micro-finance institutions are prolific in Uganda, unlike similar industries in South Africa,
they have thrived on providing loans predominantly to fund the business activities of the selfemployed. This has assisted with reducing unemployment.
India has similarly focused on embedding a culture of savings. Even though wealth has grown and
millions have been lifted out of poverty, it has not translated commensurately into proportionately
higher consumption. In fact emphasis is placed on saving more rather than consuming more. This is a
fundamental difference in culture between India and most other nations including S.A., where
similar prosperity has driven primarily conspicuous consumption. This culture can be attributed to
education from a very young age about the importance of saving, not just for the individual, but also
for the benefit of society as a whole. It would seem that individuals in Indian society feel a strong
sense of responsibility for the government deficit and believe that it is their duty to save in order to
help reduce reliance on foreign debt – and hence reduce the deficit.
In the UK, risk-free interest rate has a major influence on household consumption and savings. Over
the past decade, the long-term interest rate in the UK was at historically low levels, making it
possible for households to obtain credit easily. Banks in the UK played a role in influencing the
consumption and savings patterns of households, since excessive lending in the form of secured and
unsecured lending has encouraged individuals to increase consumption and decrease savings in the
past 10 years. However, this situation reversed during the economic slowdown. In addition, annual
inflation rate fell to 3.4% in Q1 of 2012 due to VAT hikes, falling energy prices and weak nominal
wage growth. This squeezed the consumer’s disposable income and impacted the levels of savings
even further.
5.3
Lessons learnt from comparative studies
It is clear from the findings in this section that the same determinants of low savings in South Africa
are prevalent in both Uganda and India, however both these countries have achieved higher savings
rates by addressing various aspects of the problems experienced in different ways:
5.3.1
Uganda
The banking industry in Uganda has grown rapidly in the last decade, with four main tiers emerging:
Tier 1 - 25 Commercial Banks with 468 branches
Tier 2 - 3 Credit institutions with 44 branches
Tier 3 - 4 Micro Deposit Institutions with 98 Branches
Tier 4 - >1200 Micro Finance institutions
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Only 28% of Ugandans are urbanised and many of the Tier 1 and 2 bank branches are located in
Kampala itself, with branches in some cases 200m to 300m apart and reports of some new business
entrants being visited by up to 15 banks in one day. They survive by catering to specific market
niches and designing consumer centric products. Some examples include:




Finca, one of the smaller commercial banks, started as a micro-financer servicing the Female
market in group savings schemes. It is not uncommon to see a gathering of women sitting on the
banking hall floor counting their collective savings for deposit.
Eco Bank targets a specific market for an entire year, attempting to bank the entire service
chain. For example, targeting University Students would involve banking the university itself as
well as the suppliers of goods and services to that university (books, stationery lecturers etc.).
Centenary bank introduced products which catered specifically to consumers’ needs. Their
“Good Life Loan,” provides finance to fund specific lifestyle purchases, e.g. televisions, washing
machines, etc.
Brak, a micro-financer, establishes outlets within the community itself and provides finance to
stall owners by involving a group of individuals who will support the business owner.
The opportunity in Uganda lies in the fact that in excess of 70% of the population is unbanked. A USA
Aid survey into savings and investment in rural Uganda showed that in excess of 75% of Ugandans
were saving, but only 10% in a formal institution. 20% stored cash at home and a further 40% viewed
the purchase of goods for future use i.e. food, livestock, land, etc. as their investment.
Whilst the biggest hindrance to savings is low income, the reasons for not utilising formal institutions
include access to facilities (both advice and withdrawal facilities), high minimum deposits, stringent
opening criteria and cost of savings. Respondents to the survey reflected that their main expenses in
order of priority are school Fees, medical, food, rental and transport. Consumers wanted the ability
to add to investments when disposable income allowed, indicating a need to design products to
cater to their circumstances.
Education around financial products also proved to be an important factor around encouraging
savings in formal institutions. 20% of respondents said they lacked information on why and how to
save, 14% didn’t see the benefit of saving, whereas 27% had no personal interest in savings.
However, it should be noted that ‘security of funds’ was quoted as the main reason for switching to
formal banking.
5.3.2
India
Lessons learnt from India mirror much of what consumers re-iterated in the Ugandan / US Aid
survey. Success was seen when financial institutions accelerated the rate of financial inclusion by
banking the unbanked, being more pervasive in their distribution and presence and by offering
people the right type of products and services to enable financial savings.
5.3.3
United Kingdom
To encourage savings culture, banks tightened policies to discourage debt and reward consumers
who save. Examples include the ‘Child Savings account’ by Barclays Bank in an attempt to encourage
the savings culture from childhood, as well as the launch of the “Save the Savers” national campaign
(www.saveoursavers.co.uk) - a joint initiative between financial institutions and the government to
address issues raised by savers in order to achieve the country’s long-term economic prosperity.
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This campaign aims to create consumer awareness around savings, highlight issues that affect
savings and provide a platform to campaign for the changes needed to bring government policy and
decision making closely in line with the needs of the savers. This gives financial institutions an
opportunity to align their financial solutions to consumer savings solutions. Proposals have been put
forward for government to further investigate ways to reduce the impact of interest rates, inflation
and tax on household savings.
5.4
Conclusion
Research clearly indicates that entrenching a savings culture is a common problem in both emerging
and advanced economies, reflecting similar determinants, consumer behaviours and issues. South
Africans appear to have little appreciation for the need to save and an industry has been built
around their desire to consume. The cost to the financial industry of excess debt and overburdened
consumers is still evident in low earnings and high bad debt.
Education around the need and importance of saving for both the individual and the country is
required at the most basic level. A mind shift of ‘Save to spend’ rather than ‘borrow to spend’ is
required. The benefits of this for consumers and banks are obvious and, whilst the profitability of the
consumer credit industry cannot be overlooked, a balance is required. Both Uganda and India have
achieved this by focusing lending on business activities which provide much needed employment.
South African Banks would do well to re-evaluate their types of offerings, to determine whether or
not they deliver against or answer the real human need.
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6.
Key Research insights
Our research in the preceding sections identified a number of determinants contributing to the low
savings levels in South Africa as well as initiatives employed abroad to mitigate against these
determinants.
By undertaking the SWOT analysis (see Appendix 1 – key findings SWOT analysis) some additional
insights were garnered. These included:
6.1
Unemployment
High unemployment rates lower the propensity to save. While our paper deals with employed
individuals only, the impact of unemployment is still felt through an increase in dependency ratios.
Further to this our research has shown that high income volatility correlates strongly with low
savings rates.
6.2
Education and Financial literacy
Financial illiteracy and addressing our disinclination to save is recognised as a key determinant of
saving. Initiatives that mitigated the Education determinant were particularly successful in countries
which embarked on an education drive on the importance of saving. It was noted that financial
education must start at a young age.
85% of clients surveyed in 2012 Old Mutual survey affirmed that they would welcome more financial
education. It was further determined that the Unbanked lack access to financial education.
Our low financial literacy contributes to the lack of understanding of banking products and the
benefits of saving, unsustainable or risky consumer behaviour, over-indebtedness and poor
retirement planning. Further to this it also contributes towards customers gravitating to informal
savings mechanisms.
6.3
Informal banking and group saving schemes
Research has shown that Group Savings Schemes are popular, particularly amongst low income
earners. These individuals prefer pooling cash resources to extract benefits on a group scale. Savings
in groups also tends to be used for specific purposes such as education, vacations, travel, small
business funding and for purchases around specific holiday seasons.
In addition, the popularity of group savings, while important, has also introduced barriers for banks
to access the emerging market segments, because banks have traditionally attempted to force-fit
clients into Euro-centric products.
6.4
Cost of savings
Barriers to saving include the costs charged by financial institutions, low interest rates offered, and
complex processes, particularly governance and the opening of banking accounts. Further barriers
included low disposable incomes and access to credit. The tax rate on interest on investments and
savings is a disincentive to save. From local and international research, we determined that some of
the main reasons for saving included saving for specific goals, such as school fees, medical expenses,
or just for a “Rainy Day”, indicating a need to provide “Goal-Specific” savings products.
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6.5
Access to credit
Research in both the local and international markets has shown that a high level of debt correlates
strongly to low levels of saving. We have found that our banks are highly dependent on credit
revenue streams while consumers are hungry for further credit. While the national credit regulator
has regulated the environment to protect the consumers, it has until now, not succeeded in reducing
the dependency on credit.
6.6
The paradigm shift
Based on our research and key take outs we determined that a paradigm shift is required by South
Africans. Further to the research, we used a Culture Web model (see Appendix 3– Culture Web
model) to determine the paradigm shift required in South Africa.
The approach was to evaluate the current beliefs and realities about the savings culture in South
Africa, specifically looking at stories and myths, symbols, power structures, organisations, control
systems and rituals. When these were compared to a desired future belief system we were able to
determine what paradigm shift was required:
Figure 18: Culture Web – Paradigm Shift
The recommendations that follow aim to facilitate the paradigm shift required.
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7.
Recommendations
Based on the determinants as well as the key insights uncovered during our research we have made
a number of recommendations to address the low levels of saving in South Africa. The section that
follows explores a number of recommendations aimed at addressing the low savings rate.
It should be noted that while this is a comprehensive set of recommendations we have, through a
process of prioritisation and consultation with industry experts both locally and abroad (see
Appendix 2 – Summary of findings and recommendations), focused only on education, product
innovations and technology. These are also discussed in more detail in the Business case section.
7.1
Unemployment
As we have seen, South Africa’s high unemployment rate significantly lowers the individual’s
propensity to save. While this is a macro-economic issue and there is little that banks can do to
influence employment levels, there is an opportunity for banking institutions to work closely with
government institutions to create a better platform for individuals to save.
Through the implementation of practical policy frameworks, some of the barriers leading to financial
exclusions can be removed. For example, an incentive to save could be created by reducing or
abolishing taxation on retirement and investment income (the main savings vehicles utilised
amongst salaried earners in the middle market).
In addition, banks should be looking at;
 Promoting SME lending to labour intensive small businesses; and
 Providing student loan products to assist with up-skilling.
7.2
Education and Financial Literacy
The implementation of a National Savings Programme is recommended as a transformational
approach to tie product and technology initiatives together. This will ensure that a savings culture is
embedded at grass-roots level, which over time will build a generation of savers. A savings-cultured
nation will be empowered to balance consumerism and savings, not only for their individual benefit,
but also to improve socio-economic conditions and ultimately build a better country for economic
growth (leveraging some of the lessons learnt from India on fostering a culture of national
responsibility).
The main focus of the programme will be on macro-economic benefits, financial concepts, the
benefits of saving, behavioural barriers, practical applications and related measures. Reaching
individuals with the right medium of engagement is crucial in driving the culture. Intervention
mechanisms such as TV and Radio Programmes, Theatre Shows, Websites, School Projects (e.g.
Eskom Science Expo), Active Campaigns, Social Media, Personal Bankers/Insurers should be explored
and applied appropriately to maximise the impact.
The campaign will be enhanced with the introduction of a budget and financial application that is
easy to use and easily accessible. The application’s aim would be to encourage good financial
disciplines by using information supplied (through the budgeting process) to make
recommendations on how disposable cash can be used and what should be saved.
While this approach addresses why South Africans should save, it will only work with further product
innovations that facilitate how people save.
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7.3
Cost of Saving
7.3.1
Product cost structures
To address the disincentive to save, banks would do well to consider increasing the interest rate on
household deposits to incentivise clients to save. Introducing an attractive online savings account
which offers higher interest rates, no fees, no minimum balance, insurance and a quick application
process would also entice customers to save more. Banks will benefit from the introduction of an
online savings account in the following ways:



Savings Deposits are the cheapest form of funding and replacing wholesale with Retail funding
would reduce funding costs.
Cost savings will be realised from the introduction of a digital channel.
Increased market share – it will attract more customers, and also creates an opportunity to
cross-sell additional products.
The customer will benefit from an online savings account as follows:


They will earn better income from their savings due to higher interest rates and the fact that no
fees are charged.
While not having easy access to the account can be an inconvenience for the customer, the
upside is that it creates longer term saving. Higher interest rates and a longer savings period
create motivation for the customer to want to save more as they watch their funds grow.
Product offerings should also be revised to cater to client needs. Comparative studies showed that
significant lift in savings was achieved when banks styled contractual products to assist clients in
funding household specific needs, ( for example schooling or saving for white goods.)
7.3.2
Savings and taxation
Individuals in South Africa are taxed on a tiered rate – the more you earn the more tax you pay.
While tax policies are beyond the banks’ control, they could certainly play an influential role with the
government on tax matters. For example, Government should be urged to review the tax policy to
allow individuals to earn a tax-free interest income from their bank savings accounts. This will
encourage the majority of small taxpayers with lower salaries and low interest-bearing savings
accounts to save more and for longer periods. This will also create a win-to-win situation between
banks and their customers. Banks will get low cost funds while customers will earn funds which will
be out of the income tax net.
Lessons can be drawn from India where, after the deregulation of interest rates on bank savings
accounts by the Reserve Bank of India in 2011, banks raised the rate of savings interest from 3% to
4% and then to 7%. This incentivised more customers to keep more money in savings accounts.
With the Tax Reforms anticipated in 2014, banks still have the opportunity to influence these
matters.
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7.4
Access to Credit
One of the primary determinants that impacts upon the savings culture in South Africa is the ease of
access to credit. A further dynamic that compounds this issue is the fact that much of this borrowing
is to fund consumption, rather than asset accumulation and/or wealth creation activity, such as
starting a business.
The complexity in dealing with this issue lies in the fact that lending is a primary source of revenue
for banks and throttling this activity would have a severe impact on the bottom line of financial
institutions. This in turn would have an impact on profitability and ultimately growth in the economy
and invariably on the level of employment.
So it would seem counterintuitive to suggest that banks need to slow down the rate of lending to
consumers. What is required then is a different approach to stimulate savings in a very fertile
lending environment.
Our recommendation is to use the lending opportunity to drive savings amongst individuals. This
would manifest itself in a new product offering from banks, where a customer would be granted a
loan based on affordability, the difference being that included in the affordability calculation would
be the additional contribution of a monthly premium that would be transferred into a savings
account. This contribution would run the full length of the loan agreement and then, at the end of
the loan term, the customer would have amassed a small lump sum of cash as savings. The customer
would be incentivized through better interest rates offered when they choose to include the savings
option.
In essence this amounts to putting structures in place to assist the customer in saving, without which
the customer would have generally spent the cash. This product would be designed to ensure that
the loan repayment and savings component would be secured early in the month, once the
customer's salary has been deposited. This would be a mandatory payment that a customer would
have to make every month.
The benefit to the customer is to have some savings accrued at the end of the loan term. The benefit
to the bank at an aggregate level is to have balances on book that help reduce the funding gap,
increase liquidity and improve the bank’s margin on lending.
7.5
Informal Banking
It was apparent from research that Stokvels are valuable to communities since they serve numerous
different needs of their members. The aim of our recommendations here is not to absorb Stokvels
into the formal system but rather to improve their operational efficiency and effectiveness; that is,
to support them with appropriate products that will stimulate a savings culture.
Many banks have introduced savings products for Stokvels, however members are still reluctant to
utilise formal banking instruments.
Banks should therefore be innovative and offer products that add value and cater for the specific
needs of Stokvel members who generally save for variety of reasons, for example to purchase
furniture, pay school fees, go on holidays, etc. For instance, for those who are saving for holidays,
banks could provide an account specifically designed for holidaymakers and arrange discounts or
better deals with tour operators or hotels. Further incentives such as loyalty schemes and price
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concessions could be introduced to encourage members to maintain the membership for beyond
the savings need.
Banks can also set up infrastructures for individuals to bank cash at major retailers so that Stokvel
members can bring deposit slips to meetings rather than cash. Products should also be linked to a
national savings campaign to assist in mitigating the problems associated with financial illiteracy (as
we have seen high rates of this in the Stokvel segment). Further to this, products should leverage on
basic mobile technology to facilitate account management at an individual and group level.
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8.
Business Case
Based on our recommendations in the section above, we have prioritised Education, Cost of Savings
and Informal Banking, as we believe that banks can play the biggest role. Our business case has been
built off a framework underpinned by education around financial literacy. This is supported by the
development of three products designed to encourage and facilitate savings, and on technological
enablement to support, educate and assist clients to save:
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8.1
Education and Financial Literacy
Our research, both locally and internationally, revealed that low levels of education, financial illiteracy, and
lack of knowledge and understanding of financial products affect the savings decisions of consumers.
Uninformed decisions lead to consumers accumulating high levels of debt, making insufficient provision for
retirement, and low levels of savings. Others gravitate towards informal savings mechanisms which have
proven to work within their communities. The perceived loss of disposable income when people have saved
and a lack of understanding of the economic impact of savings add to the consumer’s negative attitude. We
therefore believe that education is a critical component to be addressed in influencing the savings
behaviour of South African individuals.
Changing the savings culture does not only involve a mind-set change in individuals, but also requires a
fundamental change in both financial institutions’ and the government’s attitudes towards “savers”. It also
requires a change in terms of how we approach educating individuals about the benefits of saving.
One way to achieve this is to establish a national education programme with an integrated approach to
facilitate consistent and aligned messages as well as interventions aimed at addressing the savings culture.
This would also create an open platform where savers and borrowers are brought together to engage on
these matters (leveraging a concept similar to “Save Our Savers” in the UK, as highlighted in our research
above). In South Africa, a number of initiatives to address the savings culture have been launched by
different institutions, but there has been a lack of proper coordination at a national level to measure the
impact, and to draw on lessons learned for further improvement.
Our proposed National Savings Programme, (Figure 20 below) takes a transformational approach, aiming
to tie all these initiatives together to ensure that the culture is embedded from grass-roots level. Over time
this will build a “savings-cultured” nation, working together to balance consumerism and savings for the
individual’s benefit; to contribute towards improved socio-economic conditions and ultimately, to build a
better country for economic growth.
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B
B
B
B
B
B
Figure 19: National Savings Programme - Framework
B
= Banks’ participation in the Education Framework
We believe that by integrating awareness, knowledge, technology-based solutions, practical and
appropriate products (supported by joint sponsorship across key stakeholders) improvements in the
savings culture will result.
Banks have an important role to play in this framework (refer Figure 20 above) by influencing government
policies, contributing to the schools’ curriculum and school projects, as well as by driving their own product
and technology-based campaigns to reinforce the savings culture. By participating in the National Savings
Programme, we believe that the banks, through their expertise, knowledge and the relationships they have
with consumers, can play a prominent role in designing and measuring the impact of the programme. The
cost of developing this framework is estimated at around R5-million (refer detailed financials in Appendix
4).
The following Implementation approach is recommended:
Table 1 : Implementation approach
Focus
Objectives
Ownership
Sponsorship
Task Forces
Programme
Improving the Savings Culture of individuals within South Africa
To launch a sustainable National Savings Programme to educate South African households
on the individual, socio- and macro- economic benefits of saving.
South African Savings Institute (SASI), as the custodian on behalf of, and mandated by, the
participating stakeholders
Financial Institutions, BASA, SARB, SASI, Government, Stokvel Association, JSE following a
BankSeta approach to funding.
The Programme Committee with members from each of the stakeholder groups.
The Programme Office, hosted by SASI. Ensuring governance and overall coordination of the
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Management
Information
Controls
Reviews
Change
Management
Resource
Allocation
Action Plan
(next steps)
8.2
programme.
Strategic focus as well as all information requirements for this programme will be
determined and agreed by the Programme Committee
Mechanisms such as the code of conduct, measurements to monitor the strategic
effectiveness of the programme, and related policies will be established by the Programme
Committee together with the Programme Office
Implement quarterly reviews to assess the impact of the programme, to identify areas of
intervention and to improve on the approach.
Top Leaders from Government and the participating stakeholders (executive level) should
be seen as champions of this national programme. They need to be visible in campaigns and
be seen to speak the same national messages (as leaders of this country) without selling
their organisations.
Programme Office, National Website, National Campaigns and school projects. Subject
Matter expects will be seconded from participating stakeholders.
 Banks to approach BASA with the proposal (to obtain support from all banks)
 BASA to lobby SASI for support and custodianship.
 SASI to lobby Government bodies and other identified stakeholders
 SASI to convene initial kick-off meeting with participating stakeholders to finalise
agreement, elect the Programme Committee with the relevant Terms of Reference and
to agree on action plans to build and embed the framework
Product and Technological support
To support the proactive education approach, we have defined three products and a technological aid to
assist clients in their financial literacy journey.
8.2.1
CreditSave
Our recommendations acknowledge that whilst access to unsecured credit is one of the main determinants
of South Africa's inability to save, these products generate high margins for banks and thus suggestions to
curb this form of lending would negatively impact bank profits. We do, however, see merit in using this
product as a means to generate savings through adding a “savings” premium to clients’ monthly
repayments. We have seen examples of this working in Uganda, and recent findings in the UK have banks
introducing this type of product in order to access household deposits to meet liquidity requirements.
This savings “premium” will be channelled into a savings product which clients will have access to at the
end of the loan term, provided they do not default on loan repayments. Our detailed financial modelling
demonstrates that clients have scope in affordability testing to meet monthly payment requirements which
include this savings buffer.
The benefit to the bank would be access to cheaper funding, which funding would also act as a form of
additional credit protection and risk mitigation. Clients would be enticed into this product by a reduction in
loan interest rate, equal to a proportion of the funding benefit of additional savings (generated at the
average Negotiable certificate of deposit rate (currently 6%) which is the cheapest form of wholesale
funding banks commonly utilise to fund asset growth).
Our detailed financial assumptions calculate the loan interest reduction at 25bpts funded off 40% of the
NCD funding benefit. This benefit is calculated at R267-million, assuming clients fund a savings ”premium”
of 10% of monthly instalments. (Refer business case financials for this product in Appendix 4). The benefits
to the client include a reduced interest rate and access to lump sum savings at the end of the loan term.
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8.2.2
Informal Savings Stokvels
The opportunity to access the R44-billion pool of “grey money” circulating within Stokvels is well
documented. The social nature of these “clubs” however, has posed a barrier to entry for most banks who,
in addition, have failed to understand the groups’ requirements for need-specific products and fund
tracking. An afro-centric approach is therefore required.
Our proposal centres around maintaining the social construct of the Stokvel, whilst providing facilities to
assist members to remove the risk of transacting and storing cash, and also providing value-added loyalties
to incentivise. We see this working as follows:




Bank enters into agreements with large retailers with widespread presence in informal/rural areas i.e.
Shoprite, PEP, and Bears, to accept and pay-out cash on behalf of the Bank to Stokvel members.
(Mpesa/Vodacom principle.)
Stokvel members deposit cash at retailers and produce deposit slips at Stokvel meetings.
Risk and cost of cash removed from Bank, thus Bank charges very low admin fee only. In return for fee,
Bank provides Members with mobile statements of cumulative deposits; Stokvel receives statements of
cumulative deposits of all members.
In addition to providing facilities for cash handling, Banks utilise loyalty programmes and bargaining
power to extend benefits to Stokvel members, for example, an Education Stokvel may enjoy discounts
at PEP stores. A Christmas Stokvel could receive discounts for transport of goods/ bus trips to rural
areas. In this way, loyalties need not necessarily add costs to Banks.
The obvious benefit to banks is their ability to access a proportion of the R44-billion in deposits. Our
detailed business case financials assume benefits off attracting 10% of these funds at an opportunity cost of
6%, which is the average NCD rate, on the assumption that these additional deposits will replace funding at
wholesale rates. (See detailed financial workings in Appendix 4).
8.2.3
Existing savings products
As illustrated in the product analysis in Appendix 6, banks have a plethora of savings products on offer, but
are widely criticised for their high fee structure and low to zero interest rates, thus there is little incentive
to save. To address these issues the following is suggested:
Product Range - Our studies at EcoBank in Uganda showed that their success in attracting clients was
obtained from providing solutions that cater specifically to clients’ needs, rather than trying to fit clients to
existing products. To this end, World Bank savings surveys in the country revealed that clients save for
schooling, medical expenses and “Rainy Day contingencies.” By designing contractual type products
focused around these needs, Eco was able to build their deposit base.
In the UK, Metro Bank have re-introduced a level of simplicity to their product offering which has seen the
funding of 40 new branches.
It would appear that South African banks would benefit from simplifying their surfeit of product offerings to
provide:


A pure transactional product which attracts fees and zero interest.
Contractual-based savings product marketed specifically around client household pressure points (i.e.
schooling) with high transaction fees and tiered interest dependent on amount saved.
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Savings deposits are the cheapest form of bank funding, costing around 1% on most banks’ balance sheets.
Average Negotiable Certificate of Deposit rates (NCDs,) the most common form of bank wholesale funding,
currently average 4-5% higher than this. Banks would benefit by increasing savings rates to a margin of 23% of the NCD rate in an attempt to increase household deposits, thereby reducing wholesale funding. Our
detailed financial workings show a benefit of 90-million per 1% shift in savings growth through such
initiatives. Detailed Financial workings in Appendix 4 calculate this benefit at R240-million, assuming the
product attracts 20% of Stokvel funds.
8.2.4
Technology Aids
Other than the actual determinants hindering saving in South Africa, which require major economic shifts
to address, people often believe that they just cannot save. This is sometimes driven by their inability to
manage their money effectively, rather than by external factors hindering their savings.
There is therefore an opportunity to use technology to help enable people to save. With the advent of
mobile apps and the plethora of banking apps, it would be beneficial to the consumer to include a money
management tool. This tool would be designed to assist the customer to budget effectively and manage
their household cash flow in a more effective manner.
We envisage the system being semi-automated where it is programmed with the income of the household
and preloaded with all of the mandatory commitments of the household, e.g. the mortgage payment, car
repayments, insurance, etc. The system would then automatically appropriate the monthly household
income to the various payment commitments. It would also accrue typical household expenses such as
groceries, entertainment, school fees, etc. Once all of these commitments have been accounted for the
household net position is calculated.
The idea behind this app is that not only does it appropriate the funds; it actually ensures payment of the
accounts, thus facilitating convenience for the customer and helping them to save on banking fees. It also
takes the fear out of electronic banking and payments while still giving the customer full control of their
money by allowing them to approve all payments before they are affected.
The biggest advantage that would emerge from such an app is its ability to suggest how surplus household
funds could be appropriated. The idea is that through an intelligent back-end that assesses, amongst other
relevant information, household debt, current interest rates and the most current investment products, it
also provides the "next best action" for the surplus funds. It would therefore suggest to the user whether
to pay additional surplus funds into their mortgage, to reduce any other debt, or to put the money into
specific savings and investment products. Once they have made their choice, it automatically does it for
them.
This introduces a level of savings discipline and reduces the propensity of the human condition to want to
spend any surplus funds on consumption. Once again this would be a prompted action so that the
customer still has full control over their money.
8.3
Financials
Based on the summarised financials (refer Table 3 below), it is conservatively estimated that the
framework suggested will generate R10-billion of additional savings. This equates to a 4% growth on
current total market balances which is significant given that total savings year-on-year to July grew by 10%.
In addition, assuming that these balances will replace funding with wholesale Negotiable Certificate of
Deposits, which currently cost 6%, an additional R550-million in interest income can be generated.
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Table 2 : Summarised Financials
Initiative Objectives
Develop an education framework on financial literacy to raise
awareness.
Develop 3 products to support framework & encourage clients to save.
- CreditSave
- Informal savings
- Existing Savings
- Technology enablement
Quantifiable Bank Financial Benefits/Costs R000
Education framework
CreditSave - Interest differential on NCD wholesale funding
(@6%) vs funding with savs deposits (@0%)
Informal savings
Existing savings products
Technology Enablement & Marketing
Customer Benefits (Cost to Bank) R000
CreditSave
Existing savings products
Net Benefit
Key Financial Assumption
(20 000) Estimated cost of bank's portion of operational & initiative costs
357 988 Assumes client will fund savings of 20% of new busines annually
calculated at 70% of July 2012 YoY growth
240 000 Assumes banks attract 20% of R44b Stokvel
169 000 Reduction in wholesale funding cost calcualted at 6%(current NCD
rate)
(40 000) Build tech enablement & market above products
Cost to Bank
98 400
Assumes 25% of 6% funding benefit will be passed to clients in
the form of a 25bpt loan rate concession
84 300 Assumes savings rate increased by 3% to attract additional funds.
1% additional savings growth anticipated.
524 288
Conservative estimate based on attracting low volumes
Balance Sheet Benefits R000
CreditSave
Informal Savnigs
Existing savings product
Total estimated savings balance growth.
6 000 000
4 400 000
2 300 000
12 700 000
Represents growth of 5% on current savings
balances. (YTD Jul savs growth was 10%)
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9.
Conclusion
Our study concluded that South Africa faces many challenges in order to reverse the current trend and
positively influence our savings culture. Not only do potential savers need to understand the importance of
saving at an individual level, they also need to understand and appreciate the potential benefits for our
country as a whole.
To achieve this, investment is required from all stakeholders, including the government, the banking
industry and other financial institutions. These stakeholders will need to support the proposed programme
at a financial level, as well as be prepared to make the changes at a product level. While it is important that
stakeholders buy into the national benefits that a positive savings culture promises, it is just as important
that they have an appetite for the long-term investment required to turn around behaviours that have
been brought about by decades of conditioning.
A paradigm shift is required and while this study recognises that this is a challenging prospect, we have
uncovered enough evidence to suggest that, should these proposals be followed, South Africa will, in the
near future, have a savings culture that is positive, contributes to our economy and is one that makes all of
us proud to be South Africans.
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10.
Abbreviations
BANKSETA
BASA
SASI
NCD
NCR
LSM
BRIC
LCH
11.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
Banking Sector Education and Training Authority
Banking Association of South Africa
South African Savings Institute
Negotiable Certificate of Deposit
National Credit Regulator
Living standards measure
Brazil, India, China
Life Cycle Hypothesis
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Harjes, T. & Ricci, L. A. (2005): What drives saving in South Africa? In Nowak, M and Ricci, L.A (Ed). 2005. Postapartheid South Africa – The first ten years. International Monetary Fund, Washington DC, 48-63.
International Monetary Fund, International Financial Statistics, 1995-2005.
Jappelli, T. & Pagano, M. (1998): The Determinants of Saving: Lesson from Italy, Centre for Studies in
Economics and Finance Working Paper No. 1 March.
Jappelli, T & Padula, M. (2011): Investment in financial literacy and saving decisions,
[http://www.voxeu.org/article/investment-financial-literacy-and-saving-decisions], (Accessed 02 July 2012).
Kibuuka, L.E. (2006): Informal Finance for the Middle and High Income Individuals in South Africa: A Case
Study
Of
High
Budget
Stokvels
In
Pretoria,
University
of
Pretoria,
[http://www.upetd.up.ac.za/thesis/available/etd-07182007-150711/.../dissertation.pdf], (Accessed 1 July
2012).
Loayza, N. & Shankar, R. (2000) : Private Saving in India, World Bank Economic Review, World Bank Group,
14(3), 571-594.
Lukhele, A.K: 20 years of Stokvels and Financial Institutions in South Africa, no date. Electronic
correspondence with Andrew Lukhele, 07 August 2012.
Lusardi, A. & Mitchell, O. S. (2009): How Ordinary Consumers Make Complex Economics Decisions: Financial
Literacy and Retirement Readiness, National Bureau of Economic Research, Working Paper, no. w15350.
Luthans, F. (1992): Organizational Behaviour. Singapore: McGraw-Hill
39
CONFIDENTIAL
20. Mapenzauswa, S. (2012): South Africans live for the now, ignore calls to save, Reuters,
[http://www.reuters.com/article/2012/06/01/us-safrica-saving-idUSBRE85010P20120601], (Accessed 29 July
2012).
21. Markides,
C.C.
(1999):
A
Dynamic
View
of
Strategy,
Harvard
Business
Review,
[http://hbr.org/product/dynamic-view-of-strategy/an/SMR042-PDF-ENG], (Accessed 1 September 2012).
22. Martins, E.C. and Terblanche, F. (2003): Building organizational culture that stimulates creativity and
innovation, European Journal of Innovation Management, 6(1), 64-74.
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Research Unit & Bureau of Market Research, College of Economic & Management Sciences,
[http://www.moneyweb.co.za/mw/action/media], (Accessed 6 June 2012).
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[http://www.treasury.gov.za/comm_media/speeches/2011/2011102702.pdf], (Accessed 19 July 2012).
25. National Treasury (2011) : Keynote Address at the 10th Anniversary of the South African Savings Institute and
Launch
of
Savings
Month
2011,
[http://www.info.gov.za/speech/DynamicAction?pageid=461&sid=19955&tid=37235], (Accessed 30 May
2012).
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[http://www.treasury.gov.za/comm_media/press/2012/2012051403.pdf], (Accessed 8 August 2012).
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29 May 2012)
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33. Stokvels
worth
R44bn
(2011),
City
Press,
22
November
2011,
[http://www.citypress.co.za/Business/News/Stokvels-worth-R44bn-20111122], (Accessed 22 July 2012).
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[http:/www.myggsa.co.za/news/3553], (Accessed 22 August 2012).
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(Accessed 10 August 2012).
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(Accessed 2 July 2012).
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41. Yang, D. T., Zhang, J. & Zhou, S. (2011): Why are Saving Rates so High in China, NBER Working Paper, 16771,
NBER Programme, EFG.
40
CONFIDENTIAL
12.
12.1
Appendices
Appendix 1 – Key Findings SWOT analysis
Strengths
-
Access to facilities / banking channels
Technology and infrastructure
Access to large market share
Strong balance sheet in terms of capital
adequacy
Opportunities
-
-
12.2
Higher penalty on retirement spending
High unbanked market
High demand for financial education
(financial planning)
Informal savings mechanisms
Mobile technology
Specific products e.g. savings product for
education
Partnership to close value chains
High proportion of SMMEs
Lend for business rather than
consumption
Reduce cost of funding (infrastructure
spend)
. target industry-specific growth areas
Support for savings initiatives from
government – simplify processes, e.g.
use RICA method to open accounts
Weaknesses
-
-
Education
. awareness
. financial literacy
Easy access to credit
Processes
Product complexity
Bank costs
Low interest on savings
Threats
-
-
Low disposable income
Level of consumption
Alternatives to personal loans
Regulation (Financial Services Board –
FICA requirements, National Treasury,
South African Reserve Bank and South
African Revenue Service – tax on savings,
i.e. tax on income earned)
Unemployment has an impact on
dependency ratio
Appendix 2– Summary of findings and recommendations from SWOT
Findings
Main Reasons for Savings:
School Fees
Medical
Rainy Day
Recommendations
Design products which cater specifically to saving
for these needs
Link value chain i.e. if you bank the student, bank
the university and all its suppliers
Provide solutions not products
Education:
Success evident in countries which embarked on
an education drive on the importance of savings.
Education to start with children
85% of clients surveyed in 2012 Old Mutual
survey affirmed that they would welcome more
Develop life stage education programmes from
primary education to retirement age. Create
“dream” specific products around life stages, i.e.
save for first car, save for retirement
Banks to fund education initiatives outside of
University Study Loans i.e. skills development.
41
CONFIDENTIAL
Findings
financial education
Unbanked lack access and education
Barriers to savings:
Costs
Recommendations
This will assist unemployed to find work and
contribute to the savings pool and lower age
dependency ratio
Develop National Pride Product – e.g. Madiba
Product (“help build roads”)
Develop appropriate product, access through
mobile and education-linked savings
Low cost products i.e. utilise mobile infrastructure
and leverage future infrastructure potential
(Stafford Massie).
Low interest rates
Zero Fees on savings
Complex process (Governance & Opening)
Low disposable income
Access to credit
Revisit cost of paying higher interest rates vs.
external funding
Utilise Rica/Biometric for ID simplify opening
process
Encourage savings at the lowest level i.e. products
that encourage saving x% of salary
Save to apply for credit - insist on 2 months
instalment deposit with Personal Loans
Deposit-linked secured lending: i.e. If 90% loan
granted create term savings deposit for the 10%
deposit. Cost savings generated via this method of
funding vs. treasury funding and provide
preferential rate
Convert unsecured loans for consumption
purposes to unsecured for funding small business
Create CreditSave product as an alternative to
unsecured loans. i.e. EcoBank “Good Life” loan
which encourages individuals to save for white
goods, Lay Bye concept
Tax Rate on interest on investments & savings is Lobby Government for lower tax rates on savings
a disincentive to save
and pension withdrawals
Stricter penalties on early withdrawal
Group Savings Schemes popular
Create community/family savings product
Create Group administered Funds product where
group decides withdrawal etc. parameters
Include value chain i.e. Christmas Fund includes
transport for goods etc.
Social Media type product
Social Grants
Create compulsory savings with social grants, i.e.
if for a child, create education fund
42
CONFIDENTIAL
Findings
Recommendations
Banks do not market to GDP growth areas
Target growing industries who would be net
employers to elicit clients
12.3
Appendix 3 – Culture web: Current and Future states
Figure 20: Culture Web – Current
Figure 21: Culture Web – Future
43
CONFIDENTIAL
12.4
Appendix 4 - Detailed Financial Calculations
12.4.1 Education
Estimated cost of education framework:
Table 3: Education
Assumptions
Calculations
Cost
Programme Office Resources:
1xprogramme manager
R750 000pa
750 000
1xco-ordinator
R450 000pa
450 000
1xwebsite administrator
R450 000pa
450 000
1 200 000
National Website
Set-up costs (once-off)
Maintenance fees (annual)
500 000
R1.2 mil
1 200 000
R 500 000
500 000
Events Management
R1mil x 4
4 000 000
National Role Model
R20000 x 4
Quarterly National Events
80 000
TV Programme (weekly slot)
R200k pw
10 000 000
School Projects
R 300 000
300 000
School Curriculum
Government Funded
Annual Cost
19 430 000
12.4.2 CreditSave
Our recommendations have acknowledged that whilst access to unsecured credit is one of the main
determinants of South Africa's inability to save, these products generate high margins for banks and thus
suggestions to curb this form of lending would negatively impact bank profits. We do however, see merit in
using this product as a means to generate savings through adding a “savings” premiumto clients monthly
repayments , which will be channeled to a savings product which clients will have access to at loan term
end. The benefit to the bank would be access to cheaper funding which would also act as a form of credit
protection and risk mitigation. Clients would be enticed into this product by offering a small reduction to
loan interest rate, calculated at a percentage of the funding benefit of savings deposit vs NCD funding rate
as reflected below.
In order for this to work, banks need to find affordability beyond the client’s loan repayment. To test
whether clients can afford the additional “savings premium,” on top of their normal loan repayment we
analysed credit granted over a 6 month period at a financial service provider, over total affordability limit,
which reflected that, on average, clients utilise below 10.5% of total affordability :
Credit Allocated/Affordability Limits
Income band Sum 0-8k
8-20k
>20k
Mar2012
10.6%
9.1%
5.7%
Apr2012
10.7%
9.9%
6.0%
May2012
9.9%
9.3%
6.0%
Jun2012
10.6%
8.8%
5.4%
Jul2012
10.4%
8.8%
7.4%
Aug2012
10.3%
8.8%
3.7%
Total
10.4%
9.2%
5.7%
Figure 22: Credit Allocated/Affordability Limits
44
CONFIDENTIAL
Based on this analysis, we calculated assumptions on clients having to fund a 20% “savings premium” on
total loan value over the life of their loan.
Assuming 20% savings requirement:
Growth in the market in the last 12mnths was R40.5b. Assuming a 5%pm attrition rate
(70% of rate extracted from financials of large credit provider), new business in next
12 months
=
Assuming this reduces by 20% given current market “noise” on unsecured credit
bubble, estimated new business in next 12 months is R106b x 80%
=
Client savings
R85bx20%
=
Assume 35% of clients take up product
R13b x 35%
=
R106 billion
R 85 billion
R 17 billion
R 6 billion
This represents 2% growth on the total savings market of R281-billion which grew 10.3% year-on-year to
July 2012. In reality this balance would obviously be built up over a 2 year period, but assuming consistent
growth, we have assumed additional average savings of R6-billion.
An annuity calculation was performed to ascertain the average repayment on R30b (R85*35%) of loans at a
fixed rate of 21% over 24 months
PMT= (PV(30b),FV(0),Nper(24mnths)IR(21%)= 1,5b pm.
An annuity calculation was then performed to ascertain average % of monthly repayment required
(assuming a fixed rate on the loan,) to arrive at a R6-billion savings over a 2 year period:
(PMT=(PV(0),FV(R6b),IRR(0%),Nper24mnths))/24mnths/Repayment(250m pm) = 16% (i.e. if client
instalment is R100pm he will repay R116pm.)
The opportunity cost of losing cheaper savings funding accumulating at a Rate of 6% of repayment was
then calculated at the average current cost of wholesale funding with NCD’s = R358-million.
Assuming 25% of this benefit is given back to the client in the form of a rate concession, an annuity
calculation was performed to solve for the rate concession. This concession is 25bpts
Thus:
Assuming clients rate is reduced by 25bpts, financial outcomes are as follows:
@21% interest Total Repayment
Applying 40% NCD concession of 10bts, total repayment
Clients Save
Bank Earns less interest on the unsecured loan of
Bank Earns variable between savings and NCD rate of 6%
Total Benefit to Banks
=
=
37 003 m
36 905 m
98 m
- 86 m
358 m
272m
45
CONFIDENTIAL
12.4.3 Informal Savings – Stokvels & Existing Savings
Table 4: Stokvels’ Financials
Assumption
Attract 10% Stokvel funding
Reduce wholesale funding by equivalent amount
@ current NCD rate
Interest savings
Calculation
R44bx10%
4 400 000 000
Interest
0%
-4 400 000 000
6%
Benefit
-264 000 000
264 000 000
Table 5: Existing Savings
Assumption
NCD Rate 6%
Increase savings rate from 1% to 4%
Total savings market
Calculation
R281b
Per 1% savings growth shift
Increase cost of savings from 1% to 4%
Reduce Wholesale funding by R10m
R281b*1%x 3%
R281b*1%x 6%
Addit Savs
generated per 1%
shift
2 810 000 000
2 810 000 000
Interest
3%
6%
Benefit
-84 300 000
168 600 000
84 300 000
46
CONFIDENTIAL
Appendix 5 – PESTLE Analysis
12.5
Table 6 : PESTLE Analysis
Political
Factor
Analysis
Government relies on savings to fund infrastructure spend which in turn creates employment. In a recent survey
published by the South African Institute of Race Relations, unemployment amongst our youth aged 15-24
currently stands at 51%. This creates negative sentiment against current governing bodies and poses one of the
biggest threats to political and financial stability in the country. Policies to invest in employment intensive growth
opportunities would tackle the high unemployment rate amongst the youth – and address the low savings rates in
the mass market.
Government policy can also play a significant role in influencing savings rates. An incentive to save could be
created by reducing or abolishing taxation on retirement and investment income (the main savings vehicles
utilised amongst salaried earners in the middle market).
Economic
The South African household’s consumption expenditure is currently at 112%, indicating a negative net savings
rate. Poor savings result in a lack of liquidity in the country, against which government and institutions can borrow
to finance key economic growth initiatives. This leads to offshore funding being sourced for these initiatives which
exposes the country to further costs due to currency fluctuations. Such funding also tends to be volatile,
especially in an emerging economy, where the slightest sign of instability prompts investors to want to move their
money.
Furthermore, South Africa’s household debt to disposable income ratio was reported to be at 80% during 2011.
This means that South Africans used 80% of their disposable income to service debt. This becomes a problem
when the cost to service the debt becomes too large relative to disposable income, resulting in individuals having
to liquidate assets to finance debt and expenditure. This in turn may cause asset prices to fall, leading to a credit
crunch and worsening the savings situation in the country.
In addition, research reveals that a mere 10% of South Africans can afford to retire comfortably. This lack of
financial planning for retirement places immense pressure on government coffers, which, if not properly
managed, will result in an increase in government’s fiscal spending and drive up inflation.
Social
FinMark Trust reports that 65% of the target market uses their savings to transact. In addition, 34% of South
Africans (16+) use savings products for ‘target’ savings rather than to save for the long-term. These findings
highlight that 66% of individuals do not have or do not use savings products and services; and of this 66%, 6%
keep their savings at home, while 4% rely on an informal mechanism to save. However, research also reveals that
a willingness to save in this target market is very strong, despite competing demands on individual income.
The age dependency ratio in SA is 54%, meaning that 54% of the population is dependent on the working
populace. Trends such as low or uncertainty of income, the aging South African population, increasing family
sizes, increasingly high youth dependency and health issues such as the HIV/AIDs pandemic continue to increase
this dependency ratio, putting pressure on individual income, which in turn contributes significantly to a decline in
individual savings. In addition, South African households have a culture where finances are not openly discussed –
making it difficult for individuals to manage dependency expectations and allow a reasonable capacity for
savings.
Research further reveals that South Africa has high levels of consumption and indebtedness, which is aggravated
in most cases by the social status of individuals, and which is associated with materialism. An increased access to
credit facilities promotes this culture of debt, which impacts negatively on the savings culture. Financial
education is also lacking from a young age, and this, coupled with parental behaviour of ‘buying-off’ children as a
substitute for quality time and attention, leads to a lifestyle and culture that is carried through to adulthood. This
ultimately translates to a culture of consumption as opposed to saving.
A culture of low savings means that individuals cannot fund their socio-economic needs. This results in an
increased burden on the government to provide social support, rather than channelling funds to infrastructure
development which supports GDP growth and its resultant employment.
47
CONFIDENTIAL
Technological
Factor
Analysis
A review of literature reveals that the South African banking sector has invested heavily in research and
development over the years, implementing advanced technology to enable individuals to access banking products
and services that are both functional and cost effective. As a result, individuals are now able to conduct their
banking via the internet, cellphone banking and other mobile banking channels at lower costs than over-thecounter transactions at branch level. Through these improvements, banks are now able to provide savings
products to those who are based in the rural parts of South Africa, many of whom previously preferred to save via
Stokvels and burial societies rather than through banking institutions.
Technology also allows for different strategies and new models in banking that challenge the traditional ways of
conducting business at reduced transaction costs. Further reductions can be expected as additional automation
and efficiencies are applied, thereby enabling banking institutions to look for more innovative products and
solutions to address the savings needs in the country. Technology might even introduce ‘non-bank’ industries into
banking.
Legal
In recent years the government has developed regulatory systems and policies to support and encourage
household savings. Government has proposed legislation called the ‘New tax-free savings instrument’ as well as a
National Social Security Fund to encourage individuals to save. During the course of 2012, various discussion
papers will be issued by the National Treasury in this regard.
In addition, the National Treasury has released a policy document called ‘A Safer Financial Sector’ to better serve
the needs of South Africans. This covers, inter alia, issues relating to financial inclusion and private and public
sector retirement reforms which could lead to an increase in national savings.
There is an opportunity for banking institutions to work closely with government institutions to create a better
platform for individuals to save. Through the implementation of practical policy frameworks, further barriers
leading to financial exclusions can be removed.
Environmental
When environmental disasters strike, they can have a significant impact on the cash flow of households affected,
as well as an impact on the individual’s ability to save. For example, droughts and other environmental disasters
are significant risks faced by the farming industry every year. These risks are passed onto the individuals
employed in this sector, raising employment uncertainty which impacts on their savings capacity.
Additionally, the cost of electricity continues to increase as a result of Eskom having to service the $3.75 billion
loan from the World Bank – borrowed to build more coal-fired power stations. This also impacts the cash-flow of
South Africans and their ability to save. Recent debates around increasing the cost of water in an attempt to
reduce consumption will threaten the individual’s cash-flow still further.
An international study on the potential relevance of ISO 14000 on the banking industry worldwide will focus some
attention on environmental factors when assessing the risk of banking transactions in future. In addition, the
South African government is looking at growing the ‘green economy’ with a view to migrating workers from
economies impacted by environmental factors, such as the agricultural and tourist industries. The creation of the
Green Climate Fund through the World Bank will help developing nations (such as South Africa) to adapt to
climate change.
48
CONFIDENTIAL
12.6
Appendix 6 – Savings instruments and Products analysis
Table 7 : Savings instruments in South Africa
Savings instrument
Long term life insurance premiums
Amount
R404 billion
Percentage
22%
Retirement Fund contributions by
employers
Retirement Fund contributions by
members
R388 billion
21%
R251 billion
14%
Demand deposits
R203 billion
11%
Unit trusts stock
R188 billion
10%
Money market funds
R164 billion
9%
Mortgage advanced repayments
R131 billion
7%
Deposits < 6 months
R 38 billion
2%
Deposits > 6 months
R 21 billion
1%
Exchange Traded Funds
R 23 billion
1%
Source: Association for Savings and Investment South Africa, South African Reserve Bank, JSE
49
CONFIDENTIAL
Table 8 : Savings Products Analysis
Institution
Absa
Flexi
Account
Account Name
Absa
Money
Builder
Age Criteria (years)
Over 18
Monthly income criteria
Not
applicable
18 or letter
from parent
or guardian in
case
of
minors
Not
applicable
Minimum
balance
R 50.00
R 20.00
None
opening
Debit card issued
Maestro or
Visa
Electron
debit card
Capitec
Global One
Banking
Facility
18 or letter
from parent
or guardian
in case of
minors
Not
applicable
FNB
MTN
Smart
Account
Mobile
Money
Account
Nedbank
Nedbank
Postbank
Standard
Bank
Standard
Bank
Standard
Bank
Wizzit
Savings
Deposit
Transactor
Plus
Account
Flexi Card
Account
Eplan
PlusPlan
PureSave
Wizzit
Account
18 or letter
from parent
or guardian
in case of
minor
Not
applicable
Over 18
Over 16
Over 19
Over 18
Over 16
Over 18
Over 18
Not
applicable
Not
applicable
R0
Not
applicable
Not
applicable
< R5000
Not
applicable
18 or letter
from parent
or guardian
in case of
minors
Not
applicable
R 10.00
R 0.00
R 0.00
R 50.00
R 50.00
R 35.00
R 50.00
R 500.00
R 50.00
R 0.00
Maestro
debit card
Visa
Electron
debit card
Mobile
Money
MasterCard
Maestro or
Visa
Electron
debit card
Visa
Electron
debit card
Maestro
debit card
Maestro
debit card
None
Maestro
debit card
R 0.00
Maestro or
Visa
Electron
Debit card
R16.00
(R0.00
if
monthly
balance
more than
R5 000)
R 9.50
R 8.70
R10.00
(R5.00
if
more than
60 years &
11 months)
R16.00
(R0.00
if
monthly
balance
more than
R1 000)
R 0.00
R0.00
(R39.99
once
off
start up fee)
Monthly Fee
R 11.00
R 0.00
R 4.50
Unlimited
option
–
R49, PAYU
transact
option – R11
Monthly Internet Banking
Subscription fee
R 0.00
R 0.00
R 0.00
R 0.00
Not available
R 16.00
R 10.00
Not
available
R 22.00
R 0.00
n/a
R 19.99
Fee rebate
No
No
No
Yes
No
Yes
No
No
No
Yes
No
No
Penalty fees
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Interest Rates
0.00%
Tiered – up to
3.90%
Rewards Schemes
Not
available
Not available
Tiered – up
to 5%
Not
available
Tiered – up
to 2.75%
Not
available
Tiered – up
to 1.00%
Not
available
Tiered – up
to 1.00%
Not
available
Tiered – up
to 0.20%
Not
available
Tiered – up
to 1.75%
Not
available
Tiered – up
to 2.75%
Not
available
0.00%
Not available
1.00%
Not
available
0.00%
Not
available
Source: http://icgrowth.co.za/bankmonitor/savings-accounts/ (last updated July 2012)
50
CONFIDENTIAL
Appendix 7 – Research inputs
12.7

Interviews:
o
o
o
o



Banks – Two interviews were conducted at two major Banks in South Africa
SASI - An official was interviewed to determine what State initiatives and private sector actions are planned/required to improve the behaviour
of South African households
Stokvels Association – A meeting was held with the association to understand the role of Stokvels and how these savings find their way into the
formal banking sector. Stokvel members were also interviewed
Uganda and UK Banks – Key stakeholders were interviewed regarding savings within their countries (mainly used for comparative analysis).
Literature Reviews: A number of documents were reviewed, as shown in our Reference List; however research outcomes are mainly drawn from some
of these documents.
Desktop Research on Stokvels, from the National Treasury, The World Bank, Statistics SA, FinMark and other credible sources (e.g. Global
Competitiveness Report)
Benchmarking and comparative studies.
12.8
Appendix 8 – Banking questions
#
1.
2.
3.
4.
Question
What are the major barriers to saving in your country?
From our research, we understand the following:
 Savings mobilisation is low in developing countries, but creating and
implementing policies to raise the savings rate is difficult.
Q. What savings products have the banks introduced to provide incentives for clients to
save?
 Low savings might be a consequence of poor access to flexible, convenient and
affordable savings products.
Q. What have banks in your country done to improve access to financial services and to
encourage saving?
Does your bank have policies and procedures that may be hindering saving?
Which Government policies have the greatest impact on household saving and why is
that so?
51
CONFIDENTIAL
#
5.
6.
7.
Question
Given that access to credit is relatively easy and has an impact on the level of saving –
how do you balance the provision of credit with the need for consumers to save?
Some of the determinants of the levels of saving are education, income levels, income
stability and unemployment – what role do you see your organisation playing in
improving these socio-economic factors in order to positively impact saving?
How are you attracting the informal component of the economy e.g. Stokvels?
52