Digital Financial Services and Financial Inclusion Utilisation by the Developmental Microfinance Institutions in South Africa


In South Africa, there has been limited use of the Digital Financial Services (DFS) by the traditional Developmental Microfinance Institutions (DMFIs). However in the recent years, there has been a rise of financial services platforms that are targeting both individual consumers as well as small businesses. Recently it was announced in the media that the existing mobile networks will also be entering this space.

The emergence of the DFS technology has revolutionised the microfinance sector internationally in the manner in which they conduct their business. The DFS has given the sector an opportunity to improve customer service  by providing safe and convenient ways to disburse and repay loans and save money; to increase customer outreach by bringing services beyond brick and mortar branches and to reduce operational costs and generate additional revenue which could be translated into a possible reduction in the interest rate.

It is a widely held view that affordable financial services are critical for poverty reduction and economic growth. There is empirical evidence that shows that countries with developed financial systems enjoy higher economic growth, larger reductions in poverty and income inequality and have higher levels of financial inclusion.  DFS have proven to be one of the critical tools in addressing issues relating to lack or limited of access to finance. The World Bank describes DFS as financial services that rely on the digital technologies for their delivery.

Bezent Chongo from Positive Planet International highlighted the following benefits during the Ecosystem Development for Small Enterpise (EDSE) microfinance webinar series for the South African DMFIs to go digital:

  • Reduction of information asymmetries

By reducing the cost of acquiring information and making more information available transparently, digital technologies can make new transactions possible, leading to an increased INCLUSION of marginalized people (e.g. digital lending for farmers), and fosters trade and new employment creation opportunities.

  • Reduction of costs on transactions

Transactions are now quicker, cheaper and more convenient to carry out, leading to increased EFFICIENCY (and has the advantage of being able to deliver online BDS support considerably more cost effectively than direct physical BDS)

  • Execution of transactions automatically

Leading to the realm of the “new economy,” such as search or e-commerce platforms, digital payment systems, e-books, streaming music, and social media stimulate new INNOVATIVE business models (e.g. women artisans sell their products in an online shop.

The EDSE under the Access to Finance component is currently undertaking a research study on the role of development microfinance sector in addressing access to finance challenges. Part of the research is to explore the innovative use of fintech in enhancing development microfinance sector more efficiently and effectively, thereby addressing issues of financial inclusion. This will result in a pilot project for a DMFI that follows international best practices in microfinance and specifically focusing on the the use of fintech.