Developing financial services markets for the poor: FinMark in South Africa

by Alan Gibson, The Springfield Centre. Making Markets Work for the Poor Case Studies Series Working Paper, FAUNO Consortium, May 2006

Summary 

Developing financial services for low-income groups is recognised to be a key priority globally. In South Africa, it is an especially important issue. This case sets out the experience of FinMark, an independent trust funded by DFID, in facilitating the development of more inclusive markets for transaction banking services in South Africa. Learning from wider experiences, FinMark sought to be different from conventional approaches and was guided by a making markets work (M4P) for the poor approach.

These differences are shown in their approach to market assessment, their interventions and ultimately the scale of their sustainable impact on the wider market system.

Market understanding

Guided by the M4P framework, a number of key obstacles to extending the market for financial services to low-income groups were identified, including poor coordination, poor quality information services, inappropriate rules and weak product innovation.

Knowledge of the market and of these constraints increased iteratively both for FinMark and the local consultants and researchers with whom they worked.

Interventions

FinMark's programme of interventions was guided by their emerging understanding of the market. Key interventions included scenario-building exercises with stakeholders, a newly syndicated information service (FinScope), enhancing the quality of regulatory review processes and direct and indirect support for innovation. In contrast with conventional approaches, FinMark's approach:

§ emphasised process, intervening with stakeholders to encourage ownership;

§ concentrated on supporting functions and rules rather than the core of the market

§ was guided by a vision of how the market might work more effectively and sustainably in the future

§ built on a reputation and brand of FinMark independence and credibility

Impacts

In the three years from 2002 to 2005, some 2.3m people additionally started using banking services, an increase in the banked population from 39% to 46.5%. Although there were other factors driving change (profits, technology, moral pressures etc), the rate of increase in access doubled in this period. Compared with conventional approaches, FinMark has made a substantial additional impact, especially through the systemic changes that have resulted from its work. In particular:

§ A more informed (and constructive) public dialogue: de facto agreements among stakeholders on the focus of future development have resulted

§ A sustainable information service: FinScope is a fully financed information service with high levels of acceptance and feedback from users. FinMark-type surveys have now spread to more than seven other countries.

§ A more informed and rigorous regulatory review process: improved organisation and commitment to more rigorous regulatory review is emerging.

§ A more conducive environment for innovation: direct and (especially) indirect  support have encouraged more product innovation.

Overall, FinMark's experience in applying the M4P approach to financial services has achieved considerable positive, systemic change and is one from which other agencies can learn.

Available for download at http://www.intercooperation.ch/sed/download/issuepapers/200605-m4p/M4P_Case_study_SouthAfrica.pdf