Finally: Bank Accounts for Poor South Africans

There are no branch managers at PEP Bank. No financial consultants to mold clients’ portfolios. No flowers or leather chairs decorating the lobby, because there is no lobby.

But the mere existence of the tiny branch, little more than a narrow office and automatic teller machine hidden among discount stores and street hawkers, is proving a boon in this Cape Town suburb. It’s giving thousands of people access to something so basic elsewhere, yet so elusive in South Africa--a bank account.

With traditional banks charging monthly fees higher than most workers’ savings, a bank account in South Africa has been a luxury for the relatively wealthy.

Though several banks have begun courting the working poor--a huge segment of the population--PEP Bank has been one of the most aggressive.

The new venture pairing BoE Bank and Pep stores, a chain ubiquitous in low-income neighborhoods, already has signed up 27,000 customers at 19 no-frills branches since it opened a year ago.

By the end of this year, PEP Bank plans to have at least 90 branches in poor neighborhoods across the country and tens of thousands of additional customers.

“We want to believe that we can bend down and lift people into the banking system,” said Herman Engelbrecht, general manager.

Fahdeelah Salie never had the opportunity to join that system previously. When the 34-year-old mother of four managed to save a few of the 372 rand ($50) she made each week sewing baby clothes, she had nowhere safer than the bottom of a drawer to protect her tiny stash from the threat of robbery and temptation.

Now she is the proud holder of a cheap, safe, interest-bearing account at PEP Bank.

“Every week I see one rand or two rand more,” Salie said.

She plans to put about $7 a month in the bank to help pay for her children’s school fees, their clothes and any other unforeseen costs. At most banks in South Africa, that sum would barely cover monthly fees.

Banking analysts estimate that only 5 million to 6 million of South Africa’s 45 million people have bank accounts.

Many of those accounts have been opened by employers looking for a safe way to pay their workers. The employees, who typically withdraw their full salaries immediately, are forced to pay the high bank fees and get none of the benefits of banking, such as interest on their money and access to loans, said Wilhelm Nauta, a financial services analyst at the stockbroker Barnard Jacobs Mellet.

Other poor workers have been discouraged from opening accounts because of minimum deposit requirements of at least $7.50, prohibitive fees and few branches in poor neighborhoods.

The bank fees mainly pay for an extensive financial infrastructure--24-hour banking, financial planning services--that most poor people simply do not need, said Cas Coovadia, an official with the Banking Council, the industry’s trade group.

“Anecdotal evidence says that one of the biggest banks in the country is Edblo,” he said, referring to a popular mattress brand.

The tiny stashes of money stuffed in mattresses and drawers and under floorboards is estimated at $500 million. Deposited in banks, that money could help finance loans to foster growth in an economy in dire need of stimulation, Coovadia said.

PEP Bank hopes to pick up more customers by persuading employers to open accounts for their workers, Engelbrecht said. Unlike accounts opened for employees in other banks, the fees at PEP are minimal because of its no-frills approach. The minimum deposit is $1.50, and account holders have real access to the interest and loans they crave.

The bank keeps costs down by offering extremely limited services in spartan surroundings. The tiny storefront branch in Bellville has two tellers who open accounts, take deposits and collect loan applications.

Customers can make withdrawals only from the ATM machine outside, above which is posted a chart showing repayment rates for the small-scale loans the bank offers. These loans will eventually decide whether PEP Bank makes a profit or fails, Engelbrecht said.

Loan sharks often charge as much as 20% a month for small loans. PEP Bank charges 2% to 5%, depending on the size and duration of the loan. PEP lessens its risk by requiring that a loan customer’s salary be deposited directly into the account and the loan repayment is immediately deducted, Engelbrecht said.

Miriam Zotwa, a 62-year-old domestic worker making $70 a month, walked out of the Bellville bank after depositing $3 to open the first account she ever had. Like many South Africans, she just wanted a bit of financial security at a price she could afford.

“I want to keep my pension money here to help my children when I die,” she said.