Much of the focus in financial inclusion in recent years has been on the development of mobile financial services, but the example of Capitec Bank in South Africa illustrates how innovation and the use of technology can support financial inclusion through a branch system.
Capitec was formally established in 2001, based on the integration of some small microfinance institutions. The bank was listed on the Johannesburg Stock Exchange in 2002. The growth of the bank since then has been dramatic and it is now established clearly as the fifth major bank in South Africa.
The strategy of Capitec has been to open relatively small branches and to use, where possible, paperless processes, including the early adoption of technologies like biometric identification. The product offering is a simple, single account which provides the customer with a bank card, a deposit account and a credit line. The bank only serves individuals and not businesses. This relentless focus on simplicity has led to a cost-income ratio of just 34% in 2016, which is extremely low for a branch-based operation.
In a case study produced for Microfinance Gateway in 2003, Gerhard Coetzee described how Capitec decided on four key focus areas in their delivery strategy:
- Accessibility in terms of operating hours and location choice;
- Affordability of the service in terms of interest rates and transaction fees;
- Face-to-face service in the client home language whenever possible;
- Simplicity during the application process and transactions thereafter.
According to Coetzee: “Operationally, these four pillars form the core base of the business. The Product Range, Human Resources and MIS Systems have all been developed around this core. The functionality of these systems can be considered one of the most important management achievements.” (“Innovative Approaches to Delivering Microfinance Services: The Case of Capitec Bank”; Gerhard Coetzee, Microfinance Gateway 2003).
Growth has been phenomenal. Since 2002, total assets have grown at over 40% per annum and post-tax return on equity is consistently over 20%. Recent growth over the last 5 years is shown in the table below and remains very high. Although the growth in number of branches is slowing, the number of active customers continues to grow at more than 20% per annum, and deposit growth has been 36% per annum in the past 5 years. This growth in deposits is more than enough to fund the growth in customer loan balances and demonstrates the potential for attracting deposits from lower income segments of the population.
Selected Information for Capitec Bank
The bank is no longer specifically targeting the lower income segments of the population and draws clients from across the demographic spectrum. However, its original success was based on enhancing financial inclusion, bringing clients into the banking system that were not being served well, offering simple banking products at lower cost.
Version 1 5th January 2017