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lBANKSETA CONFERENCE

TRANSFORMATION AND THE UNBANK

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l1. Introduction

SA successful transition to political SA successful transition to political democracydemocracy

Political stability and sound economic Political stability and sound economic frameworkframework

However the socio-economic challenge is However the socio-economic challenge is still dauntingstill daunting

Cannot be removed over-nightCannot be removed over-night Thread to fledgling democracyThread to fledgling democracy

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l2. The Global Transition

SA part of global transitionSA part of global transition SA double paradigm shiftSA double paradigm shift Three revolutions: Political democracy; Three revolutions: Political democracy;

market economy & knowledge economymarket economy & knowledge economy Global revolutions will bring enormous Global revolutions will bring enormous

progressprogress Yet also the dangers of the fourth worldYet also the dangers of the fourth world

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l3. The Development Challenges Of SA’s Transition

Five types of freedom (Sen):Five types of freedom (Sen):

PoliticalPolitical Economic facilitiesEconomic facilities Social opportunitiesSocial opportunities Transparency guaranteesTransparency guarantees Protective security Protective security

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SA mixed resultsSA mixed results Core and peripheral economyCore and peripheral economy Little trickle-down effectsLittle trickle-down effects Per capita income growth negative 1975 – Per capita income growth negative 1975 –

20002000 UNDP: Growth of 7.0% needed or 3.5% UNDP: Growth of 7.0% needed or 3.5%

per capitaper capita Even a 5% growth scenario may be Even a 5% growth scenario may be

optimisticoptimistic

3. The Development Challenges Of SA’s Transition (Cont.)

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l Income of the richest 20% grew by 60%

(1975-2000) Income of the poorest 40% declined by 60% Unemployment between 29% and 40%Unemployment between 29% and 40% Growth of jobs in the financial, chemical and Growth of jobs in the financial, chemical and

information technology fieldsinformation technology fields SA’s human development index .696 (Norway SA’s human development index .696 (Norway

.942).942) 35.8% of the population live on $2 a day35.8% of the population live on $2 a day 11.5% on $1 a day11.5% on $1 a day 34% of the population under the age of 1534% of the population under the age of 15

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l4. Access To Facilities

Marginalisation of 50% of the populationMarginalisation of 50% of the population Modern and peripheral sectors not well Modern and peripheral sectors not well

integratedintegrated New forms of economic growth will have New forms of economic growth will have

to be createdto be created The SMME sector crucial in this regardThe SMME sector crucial in this regard Access to economic and other facilities Access to economic and other facilities

germane to new growthgermane to new growth Will have to be increased significantlyWill have to be increased significantly

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l5. The Unbank: The Challenge Of A

Unique Solution

SA very good banking systemSA very good banking system Good networking systemGood networking system Though complaints in rural areasThough complaints in rural areas 72% of Blacks; 53% of Coloureds and 72% of Blacks; 53% of Coloureds and

43% Indians do not have bank accounts43% Indians do not have bank accounts Use of bank accounts have declinedUse of bank accounts have declined SA usage level 40%; Brazil 35% and SA usage level 40%; Brazil 35% and

Kenya 5%Kenya 5%

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l Access particularly a problem in rural Access particularly a problem in rural

areas (35% live there)areas (35% live there) 25% of the economically unbanked in 25% of the economically unbanked in

informal settlementsinformal settlements 24% in townships24% in townships 1.9 million are pensioners and 2.9 million 1.9 million are pensioners and 2.9 million

are studentsare students The limited access of the poor limits The limited access of the poor limits

savings mobilisationsavings mobilisation

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l Hence limits investment and the growth Hence limits investment and the growth

potential of the economy potential of the economy Exert a negative influence on the stock of Exert a negative influence on the stock of

housinghousing Stokvels interesting exampleStokvels interesting example Link between formal and informal Link between formal and informal

systemssystems 60% of stokvel members have bank 60% of stokvel members have bank

accountsaccounts Could think anewCould think anew However, risk for commercial banks too However, risk for commercial banks too

high?high?

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SA need to extend access to financial SA need to extend access to financial services on a wider basisservices on a wider basis

Reform of the banking system neededReform of the banking system needed Good examples of community banks exist Good examples of community banks exist

overseas: Developed and developing overseas: Developed and developing countriescountries

Community guarantee fund in USACommunity guarantee fund in USA

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UNCTAD:UNCTAD:

Importance of financing SMME’s Importance of financing SMME’s which are not commercially bankablewhich are not commercially bankable

Create suitable instruments and Create suitable instruments and institutionsinstitutions

Provide services with different profit, Provide services with different profit, risk and liquidity profilesrisk and liquidity profiles

Extend credit to agricultural Extend credit to agricultural smallholders and small enterprisessmallholders and small enterprises

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Development banks and venture Development banks and venture capitalcapital

And micro-credit institutionsAnd micro-credit institutions Financial policies can create rents Financial policies can create rents

for the small financial institutionsfor the small financial institutions

Case for a three tier banking system in Case for a three tier banking system in SASA

Narrow, core and community banksNarrow, core and community banks

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l SARB positiveSARB positive Also accepted at NedlacAlso accepted at Nedlac For government:For government:

To promote a diversity of institutions To promote a diversity of institutions that extend access that extend access

Encourage competition in the Encourage competition in the financial financial sector sector

Protect consumers from exploitation Protect consumers from exploitation and abuse and abuse

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Could make housing for the poor more Could make housing for the poor more affordableaffordable

New legislation required; Current New legislation required; Current exemptions to the Mutual banks Act has exemptions to the Mutual banks Act has not increased accessnot increased access

Could describe minimum level of capital Could describe minimum level of capital required for community banksrequired for community banks

For these banks could allow deposit taking For these banks could allow deposit taking and extending of loansand extending of loans

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At a next level: Transmission and account At a next level: Transmission and account payments to clientspayments to clients

Participation and settlement services to Participation and settlement services to clients and higher levelclients and higher level

Several developing countries Several developing countries successful with savings mobilisation: successful with savings mobilisation: Bolivia, Dominican Republic, Bolivia, Dominican Republic, Ecuador, Guatemala, Honduras and Ecuador, Guatemala, Honduras and NicaraguaNicaragua

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Needed:Needed:

Access to credible institutions

Convenient service Market returns Security for savings

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In Bangladesh 80% of the poor access In Bangladesh 80% of the poor access to micro-financial services: 600-1000 to micro-financial services: 600-1000 institutionsinstitutions

Light regulation and indirect role by Light regulation and indirect role by central bankcentral bank

Adequate supervision and regulation Adequate supervision and regulation required for savings mobilisationrequired for savings mobilisation

SARB should not take on role for SARB should not take on role for which it does not have the capacity or which it does not have the capacity or financesfinances

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Community banks can fund themselves through wholesale deposits and minimum intervention

If they grow: higher level of prudential, governance and risk management required

Regulation should provide investor protection and systemic stability

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l6. Conclusion

SA in grip of double paradigm shiftSA in grip of double paradigm shift Significant progress, though huge backlogsSignificant progress, though huge backlogs Economic growth shows long term declineEconomic growth shows long term decline Poor insufficient access to financial servicesPoor insufficient access to financial services Constraint on savings mobilisation, Constraint on savings mobilisation,

investment and economic growthinvestment and economic growth

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Small enterprises denied access and prospective homeowners as well

Community banking or third tier can be successful

Light form of regulation required Investor protection and systemic stability

required