Building an inclusive economy through the co-operative banking movement and the imminent proposed Midrand Co-Operative Bank, writes Boitumelo Kgomo.
It is time to build an economy that serves all of us, not just the few. The Midrand community joins a growing number of workers and community initiatives to form co-operative financial institutions.
Small businesses and residents in South Africa generally have one common fundamental challenge—a lack of access to credit. Difficulty to access funding is so dismal. In 2019, the proposed Midrand Co-Operative Bank (MCB), a bank in the works, did a survey in Midrand to back this problem statement. The survey results indicate that there is a very high demand for business and residential property finance, followed by needs such as personal loans and savings/investment opportunities. To solve this problem, a seed for a co-operative bank has been planted as a sustainable solution.
What is a co-operative bank?
A co-operative financial institution/bank is an entity that is owned and democratically controlled by its members. The members are those who voluntarily join by purchasing a share in the co-op.
Once the bank obtains its licence and starts its operations, the members will be both shareholders and customers of the co-op bank. Individuals and businesses that fall within the stipulated common bond can join the co-op. A common bond is usually associational (having a common membership in an association or organisation, including a business, religious, social, co-operative, labour or educational group), occupational (are of similar occupation or profession or who are employed by a common employer or who are employed within the same business district) or residential (reside within the same defined community or geographical area).
Co-op banks are governed by the Co-Operatives Banks Act of 2007, as well as the Co-Operatives Act of 2005. The Co-Operative Banks Act is regulated by the South African Reserve Bank (SARB) and National Credit Regulator (NCR). Co-ops advocate values of self-help, self-reliance, self-responsibility, democracy, equality, and social responsibility. They are a viable self-sustaining movement that can play a major role in the socio-economic development of a country, in particular by creating employment, generating income, facilitating broad-based black economic empowerment, and eradicating poverty.
The Gauteng Department of Economic Development (GDED) has formed a Co-Operative Financial Institutions (CFI) Forum where all upcoming and existing co-op banks are given support by the likes of SARB, the Co-Operatives Bank Development Agency (CBDA) of National Treasury, in conjunction with BANKSETA and Insurance SETA. Currently, there are over 20 registered CFI’s and co-op banks with more than 30 000 members, R200 million worth of deposits, and over R300 million in assets.
What is the difference between a co-op bank and a privately-owned bank?
All customers of a co-op bank are equal shareholders. They all have a democratic vote at AGMs and have a say regarding what must be done regarding profits generated by the bank—one member has one vote. Privately-owned banks, on the other hand, are owned by minority capitalist shareholders whose aim is profit maximisation—shareholding is not equal amongst them and their unequal voting power is exercised at their AGMs. Its customers, who are the main depositors, do not have shares, thus do not receive profits generated by the bank. Also, they do not partake in AGMs. These privately-owned banks use their customers’ deposits to lend to minority groups who ‘qualify’, whilst the majority of natives are left unfinanced. Co-op banks offer higher interest rates on savings and charge lower interest rates on loans, whilst with commercial banks, the inverse is true.
What are the requirements to register a co-operative bank?
To register a co-operative financial institution/bank, the SARB requirements are a minimum of 200 member-owners, minimum R100 000, and supporting documents like a business plan, marketing strategy, constitution, loans and savings policies, and financial projections. The application is submitted at SARB and must be approved by the Prudential Authority.
The way forward
The Midrand community can no longer accept the status quo. We have thus joined the co-op movement and have recently submitted our banking licence application to SARB.
The time has come for us to take charge and drive the mandate of the community to solve its own problems. It has been 27 years since the dawn of democracy, however, the majority of natives still live in abject poverty, with black women, the youth, and disabled being the worst affected. The natives’ unemployment rate still remains painfully high and the devastating effects of COVID-19 have revealed that we need sustainable solutions to eradicate poverty.
The 20-year mortgage loans have been nothing but imprisonment for the masses. Since the pandemic started, many homes have been repossessed by the commercial banks. We will be introducing alternative ways to finance homes and to ensure that the solution is manageable and sustainable.
Twenty years is a very long time to pay debt, not to mention the exorbitant interest rates that the commercial banks still enjoy at the expense of the vulnerable.
The state-owned banks such as Postbank and Land Bank are neither here nor there in terms of financial assistance to communities.
In Midrand, the community has unified with purpose. Not only do we need to unite, but we need to formalise ourselves and establish co-ops of different types so that we can equally own and control what we consume. It is in our hands. There are many stokvels (societies) and organisations with capital who can organise themselves and form their own CFIs.
COVID-19 as a catalyst for digitisation
The arrival of COVID-19 has become a catalyst for the long awaited necessary change to leave the ‘normal’ and do things digitally. Being in lockdown revealed that digitisation can be the main way to conduct many types of businesses activities for many professionals, and that big office spaces are no longer an essential, as many have had to social distance and work from home.
Banks have adjusted their operations, updated their mobile apps so that clients can access more banking services on their smartphones, thus further reducing the need to visit a branch. Since many meetings are today held virtually and women are able to work from home, we at MCB encourage women to grab every opportunity presented by the co-op movement and occupy strategic positions. Women are now able to attend many virtual meetings at various times whilst at home.
This has increased productivity and efficiency. Banking is an essential service even during COVID-19, thus making the case for co-op banking even stronger.
The proposed Midrand Co-Operative Bank solution
Ownership is the best way to draw the masses’ interest to establish and equally own co-op banks. This creates sustainable wealth for the families, businesses, and the community. The proposed MCB is for those who live, work, study, worship, and operate their businesses in Midrand—this is our common bond. We are currently on stage three of our four-stage Development Plan. In this stage, we held a successful formation meeting on 27 May 2021, submitted our application to SARB, and will now submit to the NCR and execute other tasks. We anticipate obtaining our banking licence in the 1st quarter of 2022.