SA's burgeoning welfare population - the 14m people who receive social grants - usually make intelligent choices on how to spend their money, according to new research conducted for Finmark Trust, a lobby group which aims to find ways of extending financial services to the poor.
People who receive grants save more and use credit more, says the report, and are able to access credit on more favourable terms. They also typically use their grants to improve their homes and invest in the future, by increasing or prolonging the school attendance of members of the household.
But though they save and borrow more, they use formal financial services, like banks or micro lenders, less than people who don't receive grants.
Actuary Rob Rusconi, who conducted the research for Finmark with University of the Western Cape academic David Neave, says measuring the participation of grant beneficiaries in financial markets is difficult and complex.
The Labour Force Survey conducted quarterly by Statistics SA, which tracks the welfare of thousands of households, provided the basis for the quantitative part of the Finmark research.
"We looked at people who at first didn't receive grants and then received them, and compared them with people who still had no access to grants," says Rusconi.
"The grants appear to have a material effect on savings, so the propensity of people who receive grants to save is higher than that of people who receive no grants at all. They also have an increased propensity to access credit. Whether they save more or borrow more is difficult to say... but what we can see is an intelligent use of grants."
One case study in the report shows how a retired domestic worker returned to her rural village and used her pension to buy a fridge, which enabled her to sell meat and beer. Her son could then stop supporting her and complete his schooling.
Rusconi says critics of social grants often come to the wrong conclusions because they fail to look at the details. For instance, the fact that the woman would have required financial assistance from her son if she hadn't received the pension did not mean that the state had supported her unnecessarily. "In this case, the grant effectively went to the son. It allowed him to complete school and move into a managerial job," he says.
At 3,5% of GDP, SA's social grant programme is the biggest in the developing world and is criticised in policy and political circles for promoting dependency and sucking up funds that could be better spent in promoting productive economic activity.
By 2013 the number of social welfare beneficiaries is set to grow to 16m, with the expansion of the child support grant to children up to the age of 18.
Government's research shows that grants reach the poorest 40% of people, and in the first 12 years of democracy it contributed to lowering the proportion of people living in absolute poverty from 53% to 48%.
Government-commissioned research conducted by the Human Sciences Research Council (HSRC) in 2007 has also refuted claims that the child support grant encourages teenage pregnancy. The HSRC found no evidence to support public perceptions that young girls fall pregnant so they can claim the child-care grant of R190/month.
While the Finmark report further makes the case for social grants, it also underlines the inappropriate nature of formal banking institutions for the poor.
Rusconi says alternative channels such as cellphone banking are clearly the way for the future.
"More than half of the unbanked have cellphones. If banks insist on looking at formal vehicles, they are looking in the wrong place."
