The Microfinance Sector in South Africa: An Overview of the History, Financial Access, Challenges and Key Players

Mapping South Africa’s microcredit market
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This report provides an overview of microfinance in South Africa including history of the microcredit sector, access to financial services by low-income households, prominent MFIs and challenges faced by microlenders.

The report identifies four phases in the growth of South Africa’s microfinance industry, namely, the pioneer, breakout, consolidation and maturity phases. The study makes the following observations about access to financial services:

  • Poor households prefer informal financial services that do not adhere to laws, but are convenient and easier to understand than formal products;
  • 48% of adults lacked access to banking facilities as of 2005;
  • Low-income households consider it important to manage finances, but do not have access to long-term savings instruments that help in emergencies;
  • Few institutions serve the poor.

Challenges for South African MFIs include economic dualism, competition, bigger loans, banking fees that erode profitability, employment market, regulatory environment, lack of training and immigration. The report recommends that microlenders must focus on the target market, namely microenterprises and the very poor. They must conduct social performance assessments, offer long-term savings and insurance products, and follow a patient, persistent approach in developing their operations.

About this Publication

By Skowronski, G.