Contributing to banking services for disadvantaged populations - Capitec
Background
With a volume of assets representing almost 130% of GDP, the banking sector of South Africa is by far the most developed and most sophisticated on the continent. However, in 2008 financial exclusion still affected 24% of the population of South Africa. Nearly 40% of the South African population is unbanked and only 30% of the black population, which represents nearly 80% of the total population, has a bank account.
Nevertheless, significant progress has been made in recent years, an evolution which differs from the practices of the early 1990s when the role of providers of financial services to people outside the banking system relied on a multitude of small informal players. Current figures reflect the recent development of banking products and services aimed at the lower income groups: the rate of banking services to the South African population increased by 13 points between 2006 and 2008, from 50% to 63%. The rapid development of banking services for lower income groups has been driven by the launch in October 2004 of the entry-level account "Mzansi" (Zulu for "south"), offering services limited to deposits, withdrawals and payments by debit card (in 2007, nearly 5 million people had a "Mzansi" account). Moreover, recent years have been marked by the development of institutions which provide unsecured micro loans to individuals, offering financial products and services more tailored to the lower income client.
Among the unsecured lenders, Capitec sets an example with a unique and innovative business model. Indeed, Capitec distinguishes itself from other institutions by offering all South Africans an affordable retail banking option. A large part of its resources is derived from customer deposits. In order to offer medium term loans, Capitec needs to complement its funding with long term resources. Hence, in 2008, Proparco granted a ZAR denominated loan of 5 years to the bank. This loan was provided in rands to match Capitec’s local currency business model.
Objectives
Proparco's intervention in Capitec's financing forms part of its mission to improve access to financial services and products for historically disadvantaged populations. Micro credit promotes financial integration of people without access to the traditional banking system due to their low income and their risk profile. With its wide range of financial products and services, Capitec meets the needs of these populations. Proparco thus contributes towards improving the quality of services in terms of diversity, time and cost, working with a player who is both credible and financially robust.
Project description
Operating through a network of 371 branches that spreads in the whole of South Africa, Capitec is now the second largest player in the market for loans of small amounts in terms of assets (R 6,5 bn) and number of customers (2 millions), surpassed only by African Bank. It is the only financial institution in the low income segment to offer comprehensive banking services (unsecured loans, savings, bank accounts, credit cards etc.).
Impacts
Through its financing, Proparco participates in extending Capitec's loan maturities. Historically focused on providing very short term assistance, Capitec has over time developed longer term products that require much longer term resources. Indeed, Capitec has recently launched a 48-month loan product.
Moreover, the presence of a development finance institution of international scope, such as Proparco, among its investors gives Capitec increased credibility in the financial markets, allowing them to raise resources to finance their activities more easily.
Date and amount
The line of credit in the amount of ZAR 150 million was disbursed in 2008.