An Analysis of the Profitability of Savings Groups in South Africa

Master Thesis


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This research investigated the factors that determine the profitability of Savings Groups in South Africa using the Ordinary Least Squares model (OLS). Over the years, savings groups have increased their reach within the rural poor in South Africa who are often not reached by financial services. Financial inclusion has been a topical issue in South Africa over the past two decades due to the legacy created by apartheid, which deliberately excluded much of the population from economic participation. Specifically, the research analysed savings groups specific factors such as number of members in a group, savings as a percentage of loans outstanding, average annualised savings per member, total savings among others and how they affect profitability which is proxied by, return on assets (ROA) and return on savings (ROS). The sample data was made up of purely of secondary data from 31 projects representing 3477 Savings Groups in South Africa, that with a total membership of approximately 66 911 and was extracted from the Savings Groups International Exchange (SAVIX), an international data platform. The data used was annualised cross-sectional data. The main findings were that, total number of members (TNM) and total assets (TA), are positive and significant in explaining return on assets (ROA), while total number of groups (TNG), and total savings (TS) are negative and significant in explaining return on assets (ROA). When return on savings (ROS) was used instead as a dependent variable, total number of members, and total assets remained positive and significant in explaining return on savings. Total number of groups, total savings, total value of outstanding loans, dropout rate and average number of members per group were all significant but negative in explaining return on savings. All other variables were insignificant for both dependent variables. Return on assets and return on savings were both adopted as profitability measures in the study to cater for the possible differences in constitution of the two variables. Also considering that the research was based on savings groups, it was deemed suitable to see if the independent variables posed any significant effect on the core business of the groups, which is savings. The study contributes to the currently limited literature on profitability of savings groups. The results show that there could be some factors that can be manipulated to enhance the profitability of savings groups hence the results can inform policy formulation and regulation. The results also give an indication that some of the factors that affect the profitability of banks may also be the same for savings groups.