indexation

Measuring financial inclusion: A comparative analysis of regional South Africa

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Mahlatse Mabeba on 23 June 2021

Financial inclusion has become an important measure of inclusive economic growth in South Africa, as well as in other parts of the world. But if inclusion cannot be measured accurately it leaves policymakers and market participants making inadequately informed decisions. This article discusses a new quantitative method to construct financial inclusion indices for the nine provinces. The index trends are used to evaluate the state of financial inclusion in the recent past and to make recommendations for further financial sector development policy. The country has made improvements in financial inclusion since 1994. Since then, there has been increased access and usage of financial services. However, between 2015 and 2018 there was an overall reduction in financial services. The decline has been heavily influenced by economic shocks such as decreasing income in various provinces, a decrease in credit extension to the private sector, rising unemployment rate, and rising risks to financial infrastructure. In fact, financial inclusion in 2018 fell back to the level it was in 2014 after a decline that began in 2016. Financial inclusion has increased in Gauteng, Western Cape, and the Eastern Cape; however the Free-State and Northern Cape have experienced declines to below their 2015 level, while the other provinces experienced minor declines.