Financial inclusion in South Africa: An interview with the authors

Why do so many South Africans have basic banking access, but a far smaller number engage with wealth-building financial services? This critical question is at the heart of a research study that explores the drivers of financial inclusion in South Africa, with a particular focus on investment account ownership. To uncover these insights, Ilse Botha, Editor-in-Chief of the Journal of Economic and Financial Sciences, interviews David Mhlanga, the corresponding author, along with his co-authors Steven H. Dunga and Tankiso Moloi, of the influential article Understanding the Drivers of Financial Inclusion in South Africa.

This study sheds light on significant findings, such as the impact of financial literacy gaps, income constraints, and the design of financial products on South Africa’s financial inclusion landscape. It also connects these insights to the broader global agenda, specifically the Sustainable Development Goals (SDGs), emphasising the importance of bridging the gap between basic and wealth-building financial services. The conversation presents invaluable perspectives for policymakers, researchers, and financial professionals dedicated to fostering inclusive economic growth.

1. This paper investigated the factors that drive financial inclusion in South Africa, specifically examining what determines whether individuals own investment accounts. Which data and method did you use to conduct this research and why?

To conduct this research, we used data from the 2018 General Household Survey (GHS) conducted by Statistics South Africa. The survey provides comprehensive demographic, economic, and social data representative of South African households, making it ideal for analysing financial behaviour at the national level. Given the binary nature of the dependent variable, whether an individual owns an investment account (1) or not (0), we applied a logistic regression (logit) model. This approach is appropriate for modelling binary outcome variables and allowed us to estimate the probability of investment account ownership based on a range of independent variables such as age, gender, race, income proxy (total salary), education, and marital status. We selected the logit model over alternatives like the linear probability model or the probit model due to its robustness, interpretability, and better suitability for large-scale survey data.

2. A surprising and interesting finding of your study found that gender was not a significant factor in investment account ownership, which contrasts with much of the global literature on financial inclusion that often highlights gender as a key barrier. How do you explain this finding in the South African context?

This finding may be attributed to South Africa’s relatively progressive financial and social inclusion policies over the past two decades. National programs aimed at gender equality, financial education, and increased access to financial services may have successfully reduced gender-based barriers in basic financial access. Additionally, structural factors, such as the widespread use of electronic payments (e.g., social grants paid through bank accounts), and the availability of mobile banking services, may have helped equalise access to financial products across genders. It’s also possible that both men and women in our sample were equally exposed to employment and education opportunities, which are the primary drivers of investment behaviour, thus diminishing the direct impact of gender itself on financial inclusion.

3. An important implication of your findings is that while 64.9% of South Africans own bank accounts, only 29.7% own investment accounts. This suggests a significant gap between basic banking access and wealth-building financial services. What barriers prevent South Africans from transitioning from basic banking to investment products?

Several key barriers contribute to this gap

• Lack of financial literacy
  Many individuals may not understand the benefits, risks, or mechanisms of investment products.
• Income constraints
  Low-income households may not have the disposable income to save or invest beyond essential needs.
• Perceived risk and trust issues
  Some South Africans may distrust financial institutions or perceive investment products as too risky or complex.
• High transaction costs and minimum balance requirements
  Investment products may be perceived as expensive or inaccessible to the average consumer.
• Inequitable financial product design
  Financial services often cater more to middle- and upper-income individuals, leaving the poor underserved.

These barriers highlight the need for targeted financial education and inclusive investment products designed specifically for low-income and previously excluded populations.

4. Your study focused specifically on investment accounts using 2018 data. How do you think the COVID-19 pandemic and the subsequent economic challenges have affected the drivers of financial inclusion in South Africa recently? What extensions of this research would you consider most valuable?

The COVID-19 pandemic has likely intensified existing inequalities, with job losses and economic shocks disproportionately affecting lower-income and vulnerable groups. This may have reduced disposable income and made investment activity even less accessible for many households. However, the pandemic also accelerated digital financial services adoption, which may have opened new pathways for inclusion, especially through mobile banking and fintech platforms. Valuable extensions of this research would include:

• Post-pandemic comparative analysis to assess shifts in financial behaviour and access.
• Incorporating digital financial inclusion metrics, especially mobile money and app-based investment platforms.
• Qualitative studies to understand behavioural and psychological barriers to investment.
• Impact evaluation of financial literacy programs launched during or after the pandemic.

5. How can policymakers leverage your findings to design more effective financial inclusion strategies? Financial inclusion is acknowledged as an enabler of several SDGs. In what ways do your findings support the achievement of these goals, and what broader societal impacts might result if South Africa successfully advances financial inclusion?

Policymakers can use our findings to develop targeted financial inclusion interventions by:

• Promoting financial literacy across racial and educational groups, especially among coloured communities who show lower inclusion rates.
• Designing inclusive investment products tailored for low-income and previously excluded populations.
• Leveraging digital channels and fintech to lower costs and improve access to investment services.
• Partnering with employers to promote payroll-linked savings and investment products.

The broader societal impacts of increased financial inclusion include:

• Poverty reduction through enhanced financial resilience (SDG 1)
• Reduction in inequality by expanding access to wealth-building tools (SDG 10)
• Empowerment of women and marginalised groups through economic participation (SDG 5)
• Improved education and health outcomes, as financially included individuals can better plan for schooling and healthcare needs (SDG 3 and SDG 4)

Ultimately, advancing financial inclusion in South Africa contributes to sustainable development and economic empowerment by fostering a more resilient and equitable society.

Financial Inclusion in South Africa: Advancing Towards the Sustainable Development Goals

The interview with the authors offers a deeper understanding of the drivers of financial inclusion in South Africa and its critical role in fostering economic empowerment. By addressing barriers such as financial literacy gaps, income inequality, and limited access to wealth-building financial services, this research underscores actionable paths to bridge the divide between basic banking access and meaningful financial inclusion.

Policymakers are encouraged to leverage these insights to promote equitable access to investment opportunities, ultimately contributing to the achievement of the Sustainable Development Goals (SDGs). Enhanced financial inclusion lays the groundwork for poverty reduction, reduced inequality, and broader societal benefits that support sustainable development.

For researchers, thought leaders, and industry experts passionate about reshaping economic and financial systems, the Journal of Economic and Financial Sciences presents a platform to share groundbreaking work. Join the dialogue on financial empowerment by submitting your manuscripts to https://jefjournal.org.za/. Together, we can build a more inclusive and resilient economic future.