Generally, the use of financial products and services to promote savings and wealth accumulation is slanted towards households with higher incomes. Research indicates that there is still an alarmingly high rate of financial exclusion among the poor.
Financial inclusion is broadly defined as all persons having timely and fair access to appropriate, fair and affordable financial products and services such as bank and savings accounts, loans and insurance products, among others.
Some of the implications of excluding low-income workers from financial systems include:
No banking services: employees need to rely on cash transactions, which leads to difficulties saving money or accessing responsible credit. Cash transactions can also be more costly and less secure.
Limited savings and/or investment opportunities: this can prevent employees from having access to emergency and retirement funds and can also lead to a lack of savings goals, which inevitably increases reliance on credit.
Limited access to responsible credit and lack of credit history: this can hinder a person’s ability to access the loans needed to purchase assets such as a vehicle and a home.
Predatory practices: informal or unregulated financial channels sometimes become a necessary means for low-income workers to make ends meet. Engaging in this practice comes with high costs and unfavourable terms.
Benefits of prioritising financial inclusion
For employers, promoting financial inclusion should be more than just a corporate social responsibility goal. If implemented and stewarded properly, it could prove to be a valuable strategic business decision. By prioritising financial inclusion, employers can build a more stable, satisfied, and productive workforce, which leads to better financial health for individuals, and in turn, improves the economy.
Moving from exclusive to inclusive
There is much work to be done in the arena of making financial products available to all South Africans. Thian de Beer, Chief Executive Officer from Picsa shares some valuable advice to help you move the financial education needle in your business from exclusive to inclusive when seeking the help of a third-party service provider, such as Picsa:
Define the objectives and scope of your involvement, and identify specific areas where assistance is needed e.g., education, access to banking, debt management.
Look for companies that specialise in financial inclusion, financial education or related services that have a proven track record of success in these initiatives.
Ensure that the third parties you’re considering are registered with the correct legal and compliance bodies and regulators as it ensures that they adhere to the required regulations and ethical standards.
How Picsa is changing the narrative of financial inclusion for low-income workers in South Africa
“At Picsa, we believe that education sits within two buckets, namely implicit education, and explicit education,” says de Beer. He continues, “We interpret explicit education as standalone efforts such as courses and programs that are primarily aimed at educating the client or teaching them a specific concept (e.g. budgeting).”
Implicit education, he explains, is education that happens naturally as part of our regular interaction with clients, whether via the phone, in person or through electronic communication such as SMS or WhatsApp.
Picsa focuses on implicit education as they’ve designed an easy-to-understand offering to help them get to the heart of their client’s needs, whether it is to create better financial habits such as saving for a specific goal or emergencies and/or retirement instead of taking out costly loans or exorbitant funeral cover.
““Our client’s financial health is our number one priority, and all our products are designed in such a way as to ensure that anyone can access them regardless of their income level.””
“Our client’s financial health is our number one priority, and all our products are designed in such a way as to ensure that anyone can access them regardless of their income level,” says de Beer. For example, Picsa does not have a minimum savings contribution amount - clients can save as little as R1 at a time if that is the only amount they can afford. “We encourage them to get into the habit of saving, even if the amount is small, and then work together to increase their contribution over time,” he says.
Combatting over-indebtedness and preventing reckless credit is part of the company’s vision, and lending rules have been created to implicitly address this issue. Picsa’s lending criteria are a lot stricter than the minimum NCR requirements to ensure that employees access responsible credit. Picsa assists with consolidating debt where possible and refers clients with too much debt to an independent debt counsellor.
Through Picsa’s unique EarnBacks rewards programme, clients can effectively lower the cost of credit through better savings habits, which leads to cost savings and the accrual of financial assets.
Leveraging technology to enhance financial inclusion
When asked how the company is able to provide these affordable products, de Beer answered, “We’ve spent a lot of time automating as many parts of the process as possible to ensure that no unnecessary costs are incurred that ultimately get passed onto our clients. This keeps our products affordable and ensures that anyone can gain access to basic savings, insurance and credit products, with no prerequisites such as a minimum contribution.”
For employers, Picsa ensures that the deduction and contribution process is simple and done with the least amount of effort possible for payroll teams so that they can focus on their core tasks.
Dreaming of a financially inclusive South Africa
“At Picsa, we believe that we have the responsibility to ensure that all South Africans have access to savings products, irrespective of their income, as well as affordable insurance and access to responsible credit,” says de Beer. The team at Picsa considers matters from their client's current circumstances and point of view. “To us, they are people, not sources of revenue.”
““At Picsa, we believe that we have the responsibility to ensure that all South Africans have access to savings products, irrespective of their income, as well as affordable insurance and access to responsible credit.””
Over the years Picsa has had the privilege of helping many low-income workers in South Africa accumulate financial assets, with some minimum wage earners building up more than R100k in savings that will be used for their retirement one day.
Many of their clients come from backgrounds where saving is just not possible, and they are on a mission to change that. “In time, we’d want to see every South African start saving to build financial security for themselves and their families,” concludes de Beer.