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Wednesday, 28 March, 2001, 16:39 GMT 17:39 UK
Banking for the townships
By Crossing Continent's Arlene Gregorius
Most South Africans have not got bank accounts.
During apartheid, banking was expensive, and mostly a white thing.
Everyone else kept their money in drawers or mattresses.
For many, that is still the case, with sometimes disastrous consequences.
Earlier this year, 40 families in Cape Town lost their life savings when their homes went up in flames.
But now banks are targeting the less well-off. None more so than the new PEP Bank.
And crucially, PEP are opening branches in low-income areas and poor townships.
They started out with one branch in the Western Cape 16 months ago, but are going nationwide this year and expect to have at least 90 branches by October.
Cheap loans can make all the difference.
Ethel Mboniswa is a sales assistant from Khayelitsha, a poor black township in Cape Town with a population of over a million people.
Ethel got a loan of 400 Rand (about £35 or about $50) from PEP Bank for her daughter's school fees.
PEP Bank are able to keep costs down by offering only the most basic of services and very spare premises: no 24-hour phone banking, no carpet on the floor.
In fact nothing at all except two or three cashiers, and a cash withdrawal machine.
Account holders only get a cash card, no cheque books.
The one condition for a loan is that your salary is paid straight into the account, so that the repayments can be deducted from it.
This means of course that you have to have a regular salary - which many in the poor townships do not.
But there are no questions asked about creditworthiness.
Banking analysts estimate that only about one in eight of the population has a bank account.
Khayelitsha, with a population of one million, has only two banks (until recently there was only one) in its only, basic shopping centre.
So there is a huge market for "microlenders", many of whom are loan sharks.
They charge interest rates of up to 360% per year, locking people into debt, and poverty, with sometimes no way out other than through crime.
Banks, too, have usually proved too expensive, and not just because poorer, usually non-white, customers would have had to travel to richer, white, neighbourhoods.
The main problem is bank charges. The reasons these are so high in South Africa go back to apartheid times.
Banking used to be a mainly white thing.
So banks had to finance huge infrastructure costs, such as plush premises and first-class service, from a relatively small customer base.
They did this by charging fees for every transaction, even cash withdrawal, and high interest rates. They also usually required a minimum balance to be left in the account at all times.
These conditions still largely prevail among the mainstream financial institutions and make banking too expensive for most ordinary people.
For example, the minimum balance could be the only money people have left at the end of the month to buy food. PEP Bank still demands a minimum balance, but of only 10 Rand ($1.50).
The government has taken an interest in this issue and the parliamentary finance committee has put pressure on banks to become more affordable.
But PEP Bank, which is a joint venture between the mainstream BoE (Board of Executors) Bank and PEP stores, a downmarket chain of clothes shops, denies that they are an outcome of that pressure.
They say they simply spotted a gap in the market.