The impact of spatial inequality on financial inclusion in South Africa

Abstract

Inequality in South Africa has long been recognised as one of the most salient features of our society. Despite many efforts by the government to reduce inequality since our democratic transition in 1994, progress has been limited. The historic patterns of accumulation and economic concentration have continued to feed into South Africa’s patterns of uneven and combined development. Moreover, financial markets in many countries are undeniably incomplete, segmented, and inefficient. This is largely attributed by high transaction costs for both institutions and clients as well as biases against certain parts of the market. Therefore, people will continue to transact outside the formal financial system if they lack easy access and use of formal financial institutions. Private resources are often used in formal areas that provide better access and higher return on investment for private institutions. As a result, the development of the poorest areas remains relatively neglected.