Village banks: a financial strategy for developing the South African poor households

Access to financial services is a vital component of poverty alleviation, community and individual development. The major constraint experienced by poor South African households is lack of financial support emanating from systemic weaknesses of the formal financial institutions which include lack of infrastructural facilities, high transaction costs and traditional collateral. The objective of this study is to propose a financial strategy that would improve access to financial services and develop the poor households in South Africa. The research is literature-based since it draws on a wide range of academic literature that documents village/community banks and financing the poor. International best practices which are equally important and crucial are used to identify financial inclusion strategy that alleviates the need for collateral and high transaction costs in financial transactions. The study reveals that village banks create access to basic financial services to the poor households on a sustainable basis through community/village mutual trust, relationships, accountability, perfect knowledge, customs and participation. Based on these findings, it is recommended that village banks be established and supported adequately and used as a financial inclusion strategy for developing the poor households in South Africa