South African banks and the unbanked: Progress and prospects

Consideration is given to what the big four South African banks have done since the late nineties to open up their lending facilities to the unbanked, taking cognisance of the trends internationally, finally leading to a conclusion as to the most appropriate strategy for the future. The banks' focus has been on lending to low-income salaried individuals, making use of the downscaling strategy. Inappropriate credit technologies in this very competitive market segment led to a serious setback in 2002 when two bank micro-lenders had to terminate their operations. In contrast to their enthusiasm for the low-income market, the banks have shown a lack of interest to engage micro-entrepreneur lending, but this is to an extent vindicated by the international experience. Establishing banks dedicated to micro-finance by means of specialised public/private sector partnerships emerges as the most appropriate strategy to engage with micro-entrepreneurs. The big four banks' focus in micro-lending is expected to remain on consumption related loans for low-income salaried individuals.

G21, O16, G28

banking, credit, South Africa