An analysis of financial inclusion in South Africa

South Africa is notorious for numerous persistent economic problems of inequality, poverty and high unemployment. The country is simultaneously praised for a well-developed financial sector that provides a sophisticated array of financial products. Financial inclusion plays an important role to eradicate poverty and boost economic prosperity, yet financial inclusion is an under-researched topic in South Africa. This study examined the usage of financial services and products using the first four waves of the National Income Dynamics Study (NIDS) data. We conducted OLS and probit regressions to examine the impact of various personal- and household-level characteristics on the financial inclusion index and the probability of households being completely financially excluded, respectively. We found that households headed by more educated, older individuals enjoyed significantly higher financial inclusion index, whereas households residing in rural areas, mostly constituted by black people, in Eastern Cape, KwaZulu-Natal and Limpopo, with low real per capita income and fewer employed members, were associated with a significantly greater likelihood of complete financial exclusion. Lastly, the empirical findings suggested that poverty was associated with financial exclusion, including discrimination by banks against the poor. Not only is financial inclusion observed to be associated with systemic inequalities in South Africa, there is also a clear need for its pursuit that is aimed at avoiding the widening of inter-group inequalities. These findings call into question the holy grail in development economics.