Financial Inclusion through Regulation: A South African Perspective

Submitted in partial fulfilment of the requirements for the degree of Master of Laws by Coursework and Research Report at the University of the Witwatersrand, Johannesburg,2018This paper examines the meaning and importance of financial inclusion in South African society and the role financial regulation has to play in making it a reality. In examining financial inclusion, regard is given to the different definitions thereof and particularly what it ought to entail in the South African context. The current state of inclusion in South Africa is explored and reasons for the financial exclusion of certain individuals are suggested. The concept of shadow banking is explained and the consequences of not regulating the shadow banking system are explored with reference to reverse mortgage schemes in South Africa which have been considered in the Constitutional Court in the case of ABSA v Moore. Parallels are drawn with the shadow banking system in the United States of America and how a lack of regulation contributed to the eventual collapse of the housing market which triggered the 2008 Global Financial Crisis. Argument is made in favour of the existence of shadow banking institutions subject to better regulation in order to protect their vulnerable principal client base – low-income earners. Arguments made for and against financial regulation are analysed and the conclusion made that the case in favour of regulation is the stronger of the two. The penultimate part of this paper discusses the Financial Sector Regulation Act 9 of 2017 and the institutional changes it will bring about, in particular, the ‘Twin Peaks model of financial regulation’ and the relevancy of these changes in filling the gaps in an already sophisticated banking system. Finally, suggestions are made for further regulation that would promote financial inclusion in South Africa to the benefit of the population.XL201