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.banking, credit, South Africa

The financial systems approach to development finance: Origin, evolution and prospects

This article focuses on the prospects of the financial systems approach to development finance to ensure sustainable access to financial services for microentrepreneurs. It discusses three prerequisites for the success of this approach: the continued application of financial liberalisation policies; the delivery of financial services on a commercially viable basis by emulating the successes of informal financial intermediaries in solving the problems normally experienced by the formal financial sector when serving microentrepreneurs; and the continued appropriate support from governments and the donor community. It is postulated that these prerequisites will be fulfilled, making the author cautiously optimistic that the financial systems approach to development finance will succeed in securing sustainable access to financial services for microentrepreneurs in the 21st century.

Credit guarantee schemes as an instrument to promote access to finance for small and medium enterprises: An analysis of Khula Enterprise Finance Ltd's individual credit guarantee scheme

Small and medium enterprises (SMEs) face many constraints, such as lack of credit, which hinder them from reaching their job-creating potential. This article focuses on the constraints that increase banks' risk in lending to SMEs, and how credit guarantee schemes are used to overcome some of them. In South Africa, Khula Enterprise Finance Limited, a government initiative, operates three such guarantee schemes. This article explains the functioning of one of the schemes, namely Khula's Individual Credit Guarantee Scheme. Its performance is evaluated with reference to international best practices. Although it is generally found to operate efficiently, there are various aspects concerning the functioning of the scheme that influence negatively the willingness of banks to participate. These problems need to be addressed, as the authors are convinced that a credit guarantee scheme, with all its problems, still remains a viable way for the government to lower the normally high risk involved for banks in dealing with SMEs, and in this way to entice them to serve SMEs.