If South Africa’s banks and insurers don’t move quickly, they could miss out on the chance to profit from the large pool of financial assets held by the country’s growing black middle class, whose asset base is expected to grow by 25 percent in the next five years. During this period, the personal-financial-services profits to be gained by serving black households with monthly incomes ranging from 2,000 to 10,000 rand ($200-$1,000) could become as large as those from the highly contested and primarily white market of households with incomes above 15,000 rand. But to capture the potential of this attractive new market, the leading South African financial institutions must rapidly develop the skills needed to serve it.

Of course, South Africa’s history of racial divisions means that the distri-bution of wealth in the country remains uneven (Exhibit 1). But as a recent survey demonstrates, total holdings of financial products (including bank, insurance, and investment products) are a function more of income than of race.¹ Black consumers in the middle- and upper-income segments are as active in the personal-financial-services market as comparable whites, with little difference, for example, between the total holdings of white and black households in either...