Aurell, Ebba.
Abstract:
This dissertation analyses the role of financial services in an attempt to understand
how they might reduce the vulnerability to income risk for women street traders in
Durban, South Africa. The street traders are exposed to income risks such as
unpredictable markets, high levels of crime and lack of possibilities for business
development. The stated hypothesis for this dissertation is that 'good' financial
services may help poor individuals and households to better handle income risks and
thereby lower the vulnerability to risks and reduce poverty.
The access to financial services for the street traders in South Africa is rather limited
and commercial banks are only willing to facilitate clients that have collaterals with
an economic value. There are thus alternative financial institutions, such as
microfinance organisations, that use social collateral like, for example, group-lending
and frequent repayment schemes. This dissertation will discuss the use and impact of
fmancial services on poverty reduction with a particular focus on a microfinance
organisation and savings.
The dissertation will consist of a literature review, a theoretical framework and an
analysis of the findings from a case study. The literature review discusses the relation
between risks, vulnerability, poverty and financial services in order to provide an
introduction to the problem behind the stated hypothesis. The theoretical framework
describes the cost of an imperfect market, why formal financial institutions fail the
poor, solutions to the problem used by informal and microfinance institutions and the
impact financial services have on poverty. The case study is based on a qualitative
method through focus group discussions and individual in-depth interviews with
clients in a microfinance organisation. To analyse the differences in saving behaviour
and business related issues, the clients are divided into two groups with regards to
how long they have been using financial services. One group consists of 'old' clients
that have access and use the credit and deposit facilities accessible, and one group of
'new' clients that have just started and still have no access to the services.
The findings show that 'old' clients have a higher level of income and more advanced
businesses according to skill/capital intensity. Risk related to income and expenditures that the street traders mentioned are sensitive to the state of the
economy, unbeneficial stock, weather conditions, seasonal trends, business
agreements, crime and trade permits. Regarding savings, the street traders used a wide
range of saving alternatives such as insurance schemes, bank accounts, money
collectors, rotating credit and saving clubs and cash savings. There were thus a lack of
'good' saving opportunities and even the deposit schemes offered by the microfinance
organisation was not used due to lack oftrust and accessibility. Both the 'old' and the
'new' clients were thus aware ofthe need of savings in order to protect themselves for
future income and expenditure risks.
The main conclusion is that the use of financial services through the microfinance
organisation and other institutions may have helped the 'old' clients to develop their
businesses and reach a higher income level. There is thus a lack of 'good' financial
options for the street traders and their position is still very vulnerable.
