Article from The Economist: Banking on the Unbanked
The success of South Africa's
controversial Black Economic Empowerment (BEE) legislation in encouraging South
African firms to engage low-income communities as clients suggests an
alternative optimal relationship between private firms and government that allows
both for market efficiency and desired social outcomes.
BEE attracts controversy because its stated objectives focus
on increasing black ownership and control of South African businesses. The
South African government intends to accomplish these objectives with regulation
and preferential treatment to government-contracted private firms who adopt BEE
objectives. Critics have accused BEE of primarily benefiting wealthy,
well-connected blacks, instead of aiding the majority of South Africans who
live in low-income communities.
Rather than simply transfer assets from whites to blacks, BEE
has effectively changed the incentives that private firms face in South
Africa. By linking government contracts to
BEE objectives, many firms must adopt social goals in order to maintain
lucrative business with the government. Consequently, the South African
government has successfully engaged entire private sectors, and convinced them to
write charters that commit private firms to adopt specific actions that will
advance BEE objectives. In the drafting of these charters, the South African
government deferred to the private firms, who led the process with their
hard-earned expertise in their industry. They developed strategies that satisfy
both BEE objectives and their for-profit ambitions.
The Financial Sector Charter, discussed in WRI's
conference last December, exemplifies the success of this model. The
charter committed South African banks to redress the inequalities that South
African society inherited from apartheid. Seven months ago, South African banks
began to offer Mzansi bank accounts to low-income South Africans at
substantially reduced rates. South African banks have now opened over a million
of these accounts, according to this article from The Economist. Although clients only have
the option of storing their savings in these accounts, the South African banks
have launched the Mzansi bank accounts with the intent of building loyal
clienteles who will consume future product lines directed at the needs of
low-income South Africans.
The charters that the South African government has
encouraged private firms to create provide a promising model to conceptualize
the relationship between government and private firms. As opposed to other models
that result in wasteful, ineffective state bureaucracies, this model depends on
the incentives faced by private firms, and aligns their self-interest with
socially desired outcomes. Further research on the charters created and signed by
South African firms could offer insight on how best to encourage private firms to
target the world’s poor as clients.
