Formal and informal finance and its effects on poverty in South Africa
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Date
2023-10-30
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University of Fort Hare
Abstract
The thesis focuses on formal and informal finance, and its effect on household poverty in South Africa by using primary data and secondary data. It seeks to examine the joint effect of formal and informal finance use on household poverty in South Africa. This study adopts a mixed-methods approach in the form of exploratory sequential approach. This study was done in two stages. Firstly, interviews were conducted in three municipalities from the Eastern Cape Province. During the second stage, the quantitative research was conducted, using Finscope data for all provinces covering 2013 to 2016. To analyse qualitative data the thematic analysis used and multinomial regressions were used to analyse quantitative data. The study discovered that households from the Eastern Cape municipalities use both formal and informal finance for precautionary motives, future consumption motives, and speculative motives, to meet basic needs, to save and invest, to access credit so that they can escape the trap of poverty. In addition, the study findings show that saving in both formal finance institutions and informal finance mechanism is important in spurring poverty reduction in South Africa. The study further found that credit from both formal finance institutions and informal finance mechanism is important but does not spur poverty reduction in South Africa. The study suggests that the financial institution should implement policies and schemes that encourages households to save. These policies and schemes should aim at providing an enabling environment for savings to provide financial services that are readily available and affordable to the public in order to benefit from the desired poverty reduction effect of finance.
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Keywords
Finance -- South Africa, Informal sector (Economics), Sustainable development