• 24 Jan 2024
  • Dr Nthabiseng Moleko
  • 3Min

A Roadmap for Financial Inclusion and Economic Transformation in South Africa

A Roadmap for Financial Inclusion and Economic Transformation in South Africa

Access to financial services holds the key to unlock economic development and growth in South Africa and emerging markets. It should serve all segments of society, including entrepreneurs and individuals.

Need for Transformation in the Financial Ecosystem:

The regulatory authorities emphasise providing affordable and suitable products throughout the financial value chain. However, South Africa’s economic landscape reveals concentration in financial, mining, manufacturing, and retail sectors, necessitating a transformation of the financial ecosystem to encourage new entrants and investments in these and other new sectors. Whilst it is important to broaden investment portfolios of existing private sector investments, crowdfunding for public sector investments using subordinated debt, grant and concessionary funding is imperative.

Challenges in the Banking Sector:

A constraint in South Africa is the high concentration within the banking sector, where four major banks control more than 80% of all banking sector assets. This results in reduced competition, leading to South African banking fees being amongst the highest globally, potentially excluding a large portion of the population from essential services.

Access to financial services, including bank accounts, savings products and pension products are also influenced by factors such as income levels and employment levels. To transform the low-income economy, our critically high unemployment rate and the low growth rate of less than 1% which South Africa is trapped in, a different economic strategy through the transformation of the financial ecosystem is imperative.

Despite a sophisticated banking sector, access to credit and formal borrowings remains low, sitting at just 12% of the population.  Despite more than 70% of the population having access to some form of bank account, it is crucial to shift focus from simple access. It is important to examine the usage and frequency of use of these financial products. Our financial institutions have been slow to expanded financial services to the underserviced, unbanked and those who have previously been unsupported by the existing financing structures and mechanisms.

Diversifying the Banking Sector:

South Africa has an advanced and diverse banking sector, with a total of 18 domestic commercial banks, 13 local branches of foreign banks and 29 foreign banks with some local representation in-country illustrating this. However, the concentration primarily exists within life insurers, with the top five organisations accounting for 82% of the total market, largely offering funeral cover products. If we are to increase the availability of financial products that cultivate economic wellbeing, we must focus on capital provision to development finance institutions targeting the ‘missing middle,’ those not financed by traditional banks due to risk aversion and lack of collateral.

Recapitalisation and the ‘Missing Middle’:

Recapitalisation of institutions that have track records in providing youth, women, and entrepreneurs with financial products to expand businesses is necessary to further South Africa’s development goals and those of redistribution and structural reform. Providing permanent financial support with lines of credit to businesses will transform economic sectors and increase the market penetration of these new owners, especially where conventional finance mechanisms have been unable to serve this population. Therefore, recapitalisation of development finance institutions that finance the ‘missing middle’, targeting economic sectors and segments of the population not serviced by the traditional financing mechanisms is essential. Key here is the National Empowerment Fund, which has a solid track record of good governance, clean audits and limits risky and reckless investment through its robust processes.


Strengthening linkages between key financial entities, including the Public Investment Corporation, Industrial Development Corporation and the National Empowerment Fund is vital to enable sustained investment and financial flows, driving a new generation of blended public and private sector investment strategies. Deliberate allocation of funds is necessary to drive equity and growth in sectors that dismantle the oligopolistic structures of targeted industries and to overcome the historical exclusion of the black majority across all economic sectors.

Economist Dr Nthabiseng Moleko is a senior lecturer in Managerial Economics and Statistics and teaches at the Stellenbosch Business School and Stellenbosch Business School Executive Development.

written by

Dr Nthabiseng Moleko

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