Swaziland is a small country with a low-income population – fewer than 20% of the 531,813 adults in this land-locked kingdom earn more than E2,000 (USD $160) per month. While Swaziland is geared for growth, the country’s vulnerability to health and fiscal shocks and the outcome of the regulatory environment’s transition will impact the pace of change of financial inclusion in the near future:

• Swaziland is characterized by poor health and high mortality rates. The fact that it has the highest HIV/AIDS infection rates in the world and a life expectancy of only 49 years compounds the population’s general vulnerability. This health situation thus constrains demand for financial services on the one hand, but enhances the imperative for riskproection and income smoothing on the other.
• The combined effect of a small private sector, large public sector, small formal employment market, and reliance on external revenue results in nationwide susceptibility to fiscal shocks
• The financial services landscape is governed by both the Central Bank and the Financial Services Regulatory Authority. Due to insufficient transitional arrangments, there is uncertainty in the market regarding the jurisdiction of the two authorities, leaving some insititutions without prudential oversight
• The elegant definition of banking business facilitates non-bank provision of savings and payments, thereby supporting innovation for financial inclusion
• The facilitation of innovative products, such as branchless and mobile banking, without the system operator necessarily requiring a bank license, increases the scope of financial inclusion in Swaziland

Despite barriers to access embedded at the policy and regulatory level, around half of Swazi adults are served by formal financial services, a number that is relatively high in regional terms. This, however, does not mean that total access will be easy to achieve. For instance, just 7% of adults use formal credit and only 17% make use of informal credit. The 22% of adults who remit money from either outside or within Swaziland do so most often through un-intermediated channels, meaning that they either take the cash themselves in person or ask a travelling friend or family member to carry cash to the recipient, a risky prospect at best. General risk management also remains a particularly pernicious issue for Swazis as approximately 78% of adults do not utilize any kind of risk cover, formal or informal. 37% of adults in Swaziland are totally excluded from all financial services.

Though the potential for financial sector growth and strengthening is apparent many challenges to achieving increased and improved financial access also remain. At a macro level, the situation is evolving, and the following will require concerted effort at a policy and implementation level to encourage financial inclusion:

• Regulatory reform for cross-border products. Regional retailer groups such as Shoprite and PEP already play a deep role in remittnces elsewhere in the region, but Swaziland’s current regulation remain a significant barrier to be overcome in this regard.
• The small size of the market constrains the scope for economies of scale, thereby impacting on cost structures. Most formal sector providers primarily target the formally employed segments, a minority in Swaziland
• Broader SMME development strategy is required beyond credit to include addressing challlenges in the business environment, education, and health, as well as extending the range of savings and insurance products serving this market.
• Increase consumer protection legislation and mandate transparency of information for financial services and products

At a MESO level, key barriers include:

• Few formal financial institutions have product options specifically targeted at remittance senders and receivers, two large parts of the Swazi market
• Lack of transparency of available bank products both in terms of what is available and of the fees and terms and conditions applicable to different products
• Development credit providers, the only insittutions with substantial exposures to SMME loans, suffer from high non-performing loan ratios and undercapitalisation

At a micro level, there exist several barriers to financial inclusion including:

• Distribution challenged by absence of economies of scale. The cost of travelling even short distance to access financial services infrastructure can be significant given low incomes and small transaction values. However, the small number of consumers bar but a few channels from reaching the economies of scale needed to sufficiently reduce costs.
• Inconsistency in network connectivity for mobile money platforms
• Mobile money agents are not always liquid enough to perform successful cash withdrawals for account holders
• Mobile money E4,000 cap stymies possibility of utilizing accounts for long-term savings
• Distribution and premium collection challenges, as well as lack of regular incomes, put a large segment of the population beyond the reach of insurers

From a customer perspective, barriers include:

• Perception of banks as non-transparent, expensive, and not targeted at the ordinary man on the street
• Inaccessible documentation requirements and lack of flexibility to open accounts or simply utilize formal financial services
• Slower turnaround times in comparison to some informal alternatives
• Swazi consumers’ strong preference for cash
• Some customers present a strong aversion to using technology such as mobile money
• General lack of awareness and education regarding financial service and risk mitigation offerings

Expansion of access to financial services in Swaziland when successfully achieved will be critical as it will enable economic growth and poverty reduction.

Looking ahead: A vision for financial inclusion in Swaziland “Increase financial inclusion from 50% in 2011 (FinScope) to 75% in 2022 by growing mobile money and remittances, deepening bank reach, getting credit basics right, ensuring risk management products are available, and enabling alternative channels to serve the poor.”