Financial services use in a rural context: a case of rural communities in South Africa
- Authors: Maciko,Loyiso
- Date: 2020
- Subjects: Finance --South Africa Financial institutions -- South Africa
- Language: English
- Type: Thesis , Doctoral , PhD (Economics)
- Identifier: http://hdl.handle.net/10353/18930 , vital:42999
- Description: The thesis focuses on the gap between access and usage of financial services in rural communities of South Africa by using primary data and secondary data. It seeks to examine the factors that affect financial inclusion in rural communities of South Africa and to investigate South African trends regarding utilisation of financial services. This is since there has been an increase on adoption of financial services in South Africa however, this has not been complemented by effective usage. This rise in access of banks paints a misleading picture that majority of South Africans are included while the usage strand remains unmet as most people use bank accounts as a ‘mailbox’. This creates interest on what might be the underlying causes for lack of use, particularly in rural areas. This study adopts a mixed-methods approach in the form of exploratory sequential approach. This study was done in two stages. Firstly, focus groups were conducted in 20 villages from the Eastern Cape and Kwa-Zulu Natal. During the second stage, the quantitative research was conducted, using Finscope data for all provinces covering 2013 to 2017. For data analysis the Binary logistic regression and Multinomial regressions were adopted The study discovered that rural households from the Eastern Cape and Kwa-Zulu Natal, Limpopo and other provinces, dominated by rural areas, are often detached from the formal economy. As is the case with the rural residents that partook in this study relative to Gauteng, they did not derive any benefit from most formal economic initiatives or policies aimed at improving their well-being through access and use of financial services. Secondly, lack of income, trust, costs of financial services and distance to the nearest financial service provider remain barriers to use of financial services. To have a qualification or degree is regarded as an important factor that influences whether one saves at a bank. This causes rural residents with less education to rely on more informal saving methods. Furthermore, this study showed that households in rural locations of South Africa were either not aware or confident enough about the use and benefits of insurance and other financial services. Therefore, awareness campaigns should be promoted to gain client confidence by educating the current and potential clients. Rural households should be made aware of the safety that financial institutions give them, the interest rates earned, and the benefits that come with investing in formal institutions contrary to not investing. This study suggests that access and use of financial services has a non-uniform impact on household wealth. Thus, for effective poverty eradication in rural communities, there is a need for customized financial services and products aimed at addressing the explicit needs of the marginalised, as their needs diverge along the poverty distribution line. The results provide support to Andersen’s model as a mechanism that can be used to explain the demand-side perspective within the South African rural context. The study has made an empirical contribution tailored to the South African context. This study contributes to the current body of literature by applying the modified version of the Andersen Behavioural Model to financial vi services. It further contributes to the understanding of the relationship between the barrier to use or not use financial services in South African rural areas. It proposes that for financial market participation in the old traditional banking way there is a need to bring services to the people, and design the financial products in the manner that addresses the specific needs of the people in rural communities.
- Full Text:
- Date Issued: 2020
- Authors: Maciko,Loyiso
- Date: 2020
- Subjects: Finance --South Africa Financial institutions -- South Africa
- Language: English
- Type: Thesis , Doctoral , PhD (Economics)
- Identifier: http://hdl.handle.net/10353/18930 , vital:42999
- Description: The thesis focuses on the gap between access and usage of financial services in rural communities of South Africa by using primary data and secondary data. It seeks to examine the factors that affect financial inclusion in rural communities of South Africa and to investigate South African trends regarding utilisation of financial services. This is since there has been an increase on adoption of financial services in South Africa however, this has not been complemented by effective usage. This rise in access of banks paints a misleading picture that majority of South Africans are included while the usage strand remains unmet as most people use bank accounts as a ‘mailbox’. This creates interest on what might be the underlying causes for lack of use, particularly in rural areas. This study adopts a mixed-methods approach in the form of exploratory sequential approach. This study was done in two stages. Firstly, focus groups were conducted in 20 villages from the Eastern Cape and Kwa-Zulu Natal. During the second stage, the quantitative research was conducted, using Finscope data for all provinces covering 2013 to 2017. For data analysis the Binary logistic regression and Multinomial regressions were adopted The study discovered that rural households from the Eastern Cape and Kwa-Zulu Natal, Limpopo and other provinces, dominated by rural areas, are often detached from the formal economy. As is the case with the rural residents that partook in this study relative to Gauteng, they did not derive any benefit from most formal economic initiatives or policies aimed at improving their well-being through access and use of financial services. Secondly, lack of income, trust, costs of financial services and distance to the nearest financial service provider remain barriers to use of financial services. To have a qualification or degree is regarded as an important factor that influences whether one saves at a bank. This causes rural residents with less education to rely on more informal saving methods. Furthermore, this study showed that households in rural locations of South Africa were either not aware or confident enough about the use and benefits of insurance and other financial services. Therefore, awareness campaigns should be promoted to gain client confidence by educating the current and potential clients. Rural households should be made aware of the safety that financial institutions give them, the interest rates earned, and the benefits that come with investing in formal institutions contrary to not investing. This study suggests that access and use of financial services has a non-uniform impact on household wealth. Thus, for effective poverty eradication in rural communities, there is a need for customized financial services and products aimed at addressing the explicit needs of the marginalised, as their needs diverge along the poverty distribution line. The results provide support to Andersen’s model as a mechanism that can be used to explain the demand-side perspective within the South African rural context. The study has made an empirical contribution tailored to the South African context. This study contributes to the current body of literature by applying the modified version of the Andersen Behavioural Model to financial vi services. It further contributes to the understanding of the relationship between the barrier to use or not use financial services in South African rural areas. It proposes that for financial market participation in the old traditional banking way there is a need to bring services to the people, and design the financial products in the manner that addresses the specific needs of the people in rural communities.
- Full Text:
- Date Issued: 2020
Lending technologies and small, micro and medium enterprise borrowing: evidence from the Eastern Cape province of South
- Authors: Mbedzi, Edson
- Date: 2019
- Subjects: Financial services industry -- Information technology Banks and banking -- Information technology Small business -- South Africa -- Eastern Cape
- Language: English
- Type: Thesis , Doctoral , PhD (Economics)
- Identifier: http://hdl.handle.net/10353/12621 , vital:39293
- Description: Small, Micro and Medium Enterprises (SMMEs) play a major role in contributing to the development of most economies globally. However, such small firms often lack external financing due to their information opacity. Besides, the small firm size nature of most SMMEs impairs their ability to access finance as motivated by the market power theory. In order to address the information asymmetry problem associated with such small firms, financial institutions use different forms of lending technologies as the basis upon which lending decisions are made, that is, whether to loan or not and if the decision to lend is taken, how the intrinsic credit risks are taken into consideration. In the evaluation of the credit worthiness of small businesses, the decision to lend or not depends on soft or hard information acquired through use of a particular lending technology. Many studies in the literature cite access to credit as the main hindrance to SMMEs success. Lending technologies being the conduits transmitting that credit access, the study hypothesises that more emphasis be placed on the relationship between lending technologies and the success of small firms. Success in this case is measured in two ways; the level of SMME credit rationing that small firms endure and the resultant growth of small businesses if they access funding. However, the use of lending technologies as a measure of SMME finance access is missing in academic literature. Specifically, literature on SMMEs in South Africa only narrate the structure of SMMEs and factors affecting SMMEs funding and growth without providing a link on how these eventually influence lending technologies used that determine the lending process. This study therefore traces types of lending technologies used, factors influencing their usage and the subsequent level of credit rationing and growth of small firms. The study uses only formal and registered small firms that are members of the Border-Kei Chamber of Business and Nelson Mandela Bay Business Chamber and listed in their data bases. The study adopts a mixed methods methodology in a two stage analysis approach. In the first stage, the study identifies types of lending technologies used by funding institutions in the study area and factors lenders take into account in order to extend funding to small vi businesses. Based on interview data gathered from eight financial institutions, the types of lending technologies and factors that influence lending decisions are identified using thematic analysis method. In the second stage, the study then interrogates how lending technologies shape the credit rationing and growth of SMMEs within the Eastern Cape Province in South Africa. A sample of three hundred and twenty one (321) randomly selected SMMEs from Buffalo City and Nelson Mandela Bay metropolitans in the Eastern Cape Province is used. Data collected from SMMEs using questionnaires has been analysed to reveal the extent of credit rationing and firm growth variations among SMMEs based on the main lender and firm characteristics identified in the first stage. Credit rationing is both dichotomous, by the firm being either rationed or not, and categorical, by forms of credit rationing experienced by firms. The analysis therefore uses a combination of binary and multinomial logistic regression to evaluate effects of determinants of lending technologies on credit rationing of firms. Financial efficiency scores of firms are used as the proxy for growth of firms. The financial efficiency score is preferred because in its derivation several firm activities are incorporated as opposed to using only one growth indicator such as sales volume. The efficiency scores are generated using Data Enveloping Analysis based on selected main activity inputs and outputs of sampled firms. Since efficiency scores of a firm representing growth are a scale dependent variable, a two-way factorial analysis is used to determine the effect of lender and firm characteristics on the firm’s growth. Both the main and interaction effects of the lender and firm characteristics are captured in the analysis of both credit rationing and growth of firms. Results show that four classes of financial institutions financed formal and registered SMMEs. These are commercial banks, government-owned development financial institutions, private-owned development financial institutions and microfinance institutions. In addition, four types of lending technologies have been used to finance SMMEs in which financial institutions consider people, firm and financial information vii factors as pillars of financing decisions. Findings indicate extensive discriminatory credit rationing among SMMEs in South Africa and that growth paths followed by firms vary significantly as a result of these characteristics. The study therefore recommends the implementation of a financing framework model that allocates funds to different company structures based on credit rationing risk profiles of enterprises so as to minimize the extent of inequality exhibited in the South African population structures which have historical differences on the basis of enterprise size, ownership structure and race. The study further recommends matching of types of lending technologies with types of lenders in order to minimize overall industry credit rationing level in the SMME sector as a supplementary funding model. However, this may need further research to evaluate its application. This is important given that financial institutions use different lending technologies at the same time and further, not all financing institutions may use all forms of lending technologies. For example, microfinance institutions may not have the capacity to use venture capital lending technologies
- Full Text:
- Date Issued: 2019
- Authors: Mbedzi, Edson
- Date: 2019
- Subjects: Financial services industry -- Information technology Banks and banking -- Information technology Small business -- South Africa -- Eastern Cape
- Language: English
- Type: Thesis , Doctoral , PhD (Economics)
- Identifier: http://hdl.handle.net/10353/12621 , vital:39293
- Description: Small, Micro and Medium Enterprises (SMMEs) play a major role in contributing to the development of most economies globally. However, such small firms often lack external financing due to their information opacity. Besides, the small firm size nature of most SMMEs impairs their ability to access finance as motivated by the market power theory. In order to address the information asymmetry problem associated with such small firms, financial institutions use different forms of lending technologies as the basis upon which lending decisions are made, that is, whether to loan or not and if the decision to lend is taken, how the intrinsic credit risks are taken into consideration. In the evaluation of the credit worthiness of small businesses, the decision to lend or not depends on soft or hard information acquired through use of a particular lending technology. Many studies in the literature cite access to credit as the main hindrance to SMMEs success. Lending technologies being the conduits transmitting that credit access, the study hypothesises that more emphasis be placed on the relationship between lending technologies and the success of small firms. Success in this case is measured in two ways; the level of SMME credit rationing that small firms endure and the resultant growth of small businesses if they access funding. However, the use of lending technologies as a measure of SMME finance access is missing in academic literature. Specifically, literature on SMMEs in South Africa only narrate the structure of SMMEs and factors affecting SMMEs funding and growth without providing a link on how these eventually influence lending technologies used that determine the lending process. This study therefore traces types of lending technologies used, factors influencing their usage and the subsequent level of credit rationing and growth of small firms. The study uses only formal and registered small firms that are members of the Border-Kei Chamber of Business and Nelson Mandela Bay Business Chamber and listed in their data bases. The study adopts a mixed methods methodology in a two stage analysis approach. In the first stage, the study identifies types of lending technologies used by funding institutions in the study area and factors lenders take into account in order to extend funding to small vi businesses. Based on interview data gathered from eight financial institutions, the types of lending technologies and factors that influence lending decisions are identified using thematic analysis method. In the second stage, the study then interrogates how lending technologies shape the credit rationing and growth of SMMEs within the Eastern Cape Province in South Africa. A sample of three hundred and twenty one (321) randomly selected SMMEs from Buffalo City and Nelson Mandela Bay metropolitans in the Eastern Cape Province is used. Data collected from SMMEs using questionnaires has been analysed to reveal the extent of credit rationing and firm growth variations among SMMEs based on the main lender and firm characteristics identified in the first stage. Credit rationing is both dichotomous, by the firm being either rationed or not, and categorical, by forms of credit rationing experienced by firms. The analysis therefore uses a combination of binary and multinomial logistic regression to evaluate effects of determinants of lending technologies on credit rationing of firms. Financial efficiency scores of firms are used as the proxy for growth of firms. The financial efficiency score is preferred because in its derivation several firm activities are incorporated as opposed to using only one growth indicator such as sales volume. The efficiency scores are generated using Data Enveloping Analysis based on selected main activity inputs and outputs of sampled firms. Since efficiency scores of a firm representing growth are a scale dependent variable, a two-way factorial analysis is used to determine the effect of lender and firm characteristics on the firm’s growth. Both the main and interaction effects of the lender and firm characteristics are captured in the analysis of both credit rationing and growth of firms. Results show that four classes of financial institutions financed formal and registered SMMEs. These are commercial banks, government-owned development financial institutions, private-owned development financial institutions and microfinance institutions. In addition, four types of lending technologies have been used to finance SMMEs in which financial institutions consider people, firm and financial information vii factors as pillars of financing decisions. Findings indicate extensive discriminatory credit rationing among SMMEs in South Africa and that growth paths followed by firms vary significantly as a result of these characteristics. The study therefore recommends the implementation of a financing framework model that allocates funds to different company structures based on credit rationing risk profiles of enterprises so as to minimize the extent of inequality exhibited in the South African population structures which have historical differences on the basis of enterprise size, ownership structure and race. The study further recommends matching of types of lending technologies with types of lenders in order to minimize overall industry credit rationing level in the SMME sector as a supplementary funding model. However, this may need further research to evaluate its application. This is important given that financial institutions use different lending technologies at the same time and further, not all financing institutions may use all forms of lending technologies. For example, microfinance institutions may not have the capacity to use venture capital lending technologies
- Full Text:
- Date Issued: 2019
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