Exploring the relationship between financial inclusion and assets accumulation in South Africa

Purpose - The purpose of this paper is to explore the feasibility of asset-building social welfare in South Africa using the FinScope (2014) consumer survey data set. This is achieved using quantile regression technique to examine how financial inclusion influences asset ownership of individuals at the bottom of the assets distribution. Design/methodology/approach - This paper test the feasibility of asset-building social policy for poor families in South Africa by examining the relationship between financial inclusion and asset ownership using FinScope 2014 consumer survey for South Africa. Financial inclusion is captured by monthly savings and insurance whereas asset ownership is measured by a composite assets index derived using multiple correspondence analyses from indicators of individual asset possession. Quantile regressions are used to examine how financial inclusion influences asset ownership of individuals at the bottom of the assets distribution. Findings - Evidence from mean and quantile regressions showed that the relationship between financial inclusion and asset ownership is positive and statistically significant at 1 per cent level across the entire assets distribution. However, across the distribution, the change in asset ownership varies: higher at the lower tail (10th) quantile, lower at the median (50th) quantile and higher at the upper tail from the 60th quantile. Thus, the poor and low-income families, some of whom may be gaining formal access for the first time, may derive more satisfaction than frequent users such as the working class. Research limitations/implications - This evidence provides a good case for progressive asset-building social welfare programmes for the poor and low-income families in South Africa. With 11.9 million children currently receiving child support grants, the puzzle is whether income transfer alone can assist these children to break out of poverty. The results should be interpreted as association as the analysis is based on cross-sectional data. Practical implications - The implications of this study are that social welfare in South Africa needs to extend beyond transfer and invest in capacity development of the poor. Asset-building social policy that combines income transfer and asset building such as child development/saving accounts will help to provide a sustainable pathway out of poverty. Social implications - Financial inclusion and asset-building social welfare is a crucial issue as it has the potential to improve welfare of the poor. That is, it acts as a complementary strategy to the income transfer approach to poverty alleviation by enabling the poor to find a sustainable pathway out of poverty by building assets. Originality/value - Financial inclusion and asset building is a rare area of research particularly in South Africa. This study therefore is timely and its findings will be handy for policy makers in South Africa. Furthermore, the findings will stimulate future research and debates on how financial inclusion and asset-building social welfare can be used to close the gap between the rich and the poor in South Africa.