South Africa’s cash-strapped local communities deserve the financial benefit of a cooperative banking option, says Phatu Mbedzi in an interview with Ido Lekota
In countries with massive socio-economic inequalities like South Africa, cooperative banks have an important role to play in addressing the gaps left by traditional financial institutions like commercial banks. Their importance lies in their ability to foster financial inclusion, reduce inequality, support local development and build more resilient and equitable societies.
In essence, cooperative banks act as a community-embedded financial ecosystem that empowers marginalised communities, promotes equitable resource distribution, and supports sustainable local economic development, thereby fostering more inclusion and resilient societies.
Cooperative banks achieve this so by prioritising providing affordable and accessible financial services such as savings accounts, credit, insurance and payment services to low-income individuals, underserved rural populations and any other marginalised groups that are often excluded by traditional banks.
Unlike private banks, the cooperative banks’ community-centric and democratic model allows members to pool resources and democratically control the bank, ensuring services meet local need and priorities.
One such financial institution is the Midrand Savings and Credit Co-operative (SCCO) that was founded in 2023. Midrand SCCO is owned and democratically controlled by its members, with its ownership open to individuals who live, work, study, worship or operate businesses in the Midrand area. Members voluntarily join by purchasing a share in the cooperative and each member has an equal say in the governance and decision-making processes.
The Midrand SCCO provides services for its members ranging from accepting savings deposits and providing loans to members, to offering access to credit for personal, business or emergency needs at rates and terms typically more favourable than those offered by commercial banks or informal lenders.
Ethical leadership in cooperative banks
Traditionally, cooperative financial institutions are often seen as embodying a more ethical form of finance to private individuals. This is because their structure inherently prioritises people over profit, fostering a culture of trust and shared prosperity. This stands in contrast to profit-maximising models that can sometimes lead to predatory practices or a detachment from community needs. In Africa, this ethical underpinning has been crucial in building financial services in communities where trust in traditional institutions might be low.
According to the Midrand SCCO Chief Operations Officer, Phatu Mbedzi, ethical leadership is embedded in the institution’s mission and vision.
“In the Midrand SCCO, we define ethical leadership as upholding the cooperative’s core values of self-help, self-responsibility, democracy, equality, equity and solidarity. We also see it as embracing the ethical values of honesty, openness, social responsibility and caring for others, which are rooted in the tradition of cooperative founders,” says Mbedzi.
“As a cooperative financial institution, Midrand SCCO exists to serve its members, not to profit from their financial needs, and any surplus income is returned to members or directed towards improving services. Therefore, ethical leadership ensures decisions prioritise the financial and economic well-being of the member-owners and the sustainable development of the community,” added the Midrand COO.
For Mbedzi, it is also important that leaders like herself are guided by the seven cooperative principles which are foundational to the Midrand SACCO. These principles are voluntary and open membership, democratic member control, member economic participation, autonomy and independence, education, training, and information, co-operation among co-operatives and concern for community.
As a leader, Mbedzi believes in “establishing clear, ethical guidelines, fostering a culture of open communication where team members feel safe to raise concerns, and always considering the broader impact of decisions on all stakeholders”.
She also strives to lead with integrity, ensuring her actions align with her values and building long-term trust.
Importance of a democratic structure in cooperative banks
Generically speaking, the structure of cooperative banks entrenches accountability primarily through its democratic governance framework, as this ensures that power originates from and is controlled by its members themselves.
For the Midrand SCCO, the “one member, one vote” principle enshrined in cooperative philosophy worldwide—as part of the institution’s democratic governance framework—is a powerful tool for accountability.
As Mbedzi avers: “It ensures that even the smallest saver has an equal say to the largest, fostering genuine democracy that is often absent in shareholder-driven corporations. This democratic governance, while sometimes slower in decision-making, ensures deeper buy-in and collective responsibility, which is crucial for maintaining transparency and resisting undue influence.”
Importance of governance structures in upholding ethical standards
According to Mbedzi, the Midrand SCCO’s governance structures are designed to uphold the highest ethical standards through several mechanisms. These include annual general meetings (AGM), a board of directors, executive committees, as well as an audit and risk committee.
“These structures, coupled with the cooperative’s not-for-profit mandate and their emphasis on member well-being, ensure ethical conduct and accountability. Beyond the formal structures, a key aspect of cooperative governance globally is the active engagement of members,” adds Mbedzi.
“Unlike commercial banks—where the average customer has no say—cooperative members are encouraged to participate, ask questions at AGMs, and even stand for election. This active participation acts as a continuous ethical check and balance, reinforcing transparency and holding leadership accountable to the collective interest rather than individual gain.”
Impact of being member-owned on the Midrand SCCO
Being member-owned and controlled fundamentally shapes the Midrand SCCO’s approach to serving the community by ensuring that all operations and services are geared towards the financial and economic well-being of its members. This is because the cooperative exists solely to serve members, rather than to maximise profits for external shareholders, posits Mbedzi.
“The common bond for the Midrand SCCO is the Midrand community itself—those who live, work, do business, worship, and/or study in Midrand. This ensures that the money deposited by members remains within and benefits the Midrand community. The objectives include promoting a culture of savings, offering affordable loans, providing high interest rates on deposits and low rates on loans, enabling members to share in surpluses and improving financial literacy,” says Mbedzi.
Importance of leadership development
It is Mbedzi’s view that the Midrand SCCO recognises the importance of education, training, and information as one of its core cooperative principles. These principles, she contends, directly contributes to leadership development for those serving in governance roles.
“This broader objective supports the growth and empowerment of all members, which can include fostering future leaders, while informing the general public, particularly young people, about the nature and benefits of cooperations helps to cultivate a new generation of cooperators and potential leaders,” states Mbedzi.
According to Mbedzi, this approach builds a pipeline of informed and committed leaders from within the Midrand community, ensuring the long-term sustainability and relevance of the Midrand SCCO. This, she argues, is particularly vital for the youth living in Midrand, notably providing them with skills and opportunities in often challenging economic landscapes.
Driving financial inclusion of marginalised communities
The Midrand SCCO contributes to the economic empowerment and financial inclusion of black communities in Midrand through its foundational principles and operational model: Midrand’s demographic composition is approximately 74% black (54% African, 17% Asian, and 3% Coloured). By serving the entire Midrand community, irrespective of race, the SCCO inherently provides services to a predominantly black population.
“The cooperative model means that members, including those from black communities, own and control the institution, ensuring that financial services are designed to meet their specific needs rather than external profit motives. By promoting a culture of savings and offering easy access to affordable personal, housing and business loans, the Midrand SCCO directly facilitates wealth creation and economic activity within Midrand,” states Mbedzi.
Advancing and promoting Black entrepreneurship
Cooperative banking plays a crucial role in advancing black-owned businesses and entrepreneurs, particularly through cooperative financial institutions like the Midrand SCCO, which can offer more flexible and affordable loan products compared to traditional banks due to their not-for-profit nature and their focus on member well-being. This is vital for black-owned businesses and entrepreneurs, who may otherwise face barriers in accessing traditional financing.
According to Mbedzi: “In terms of partnerships, the Midrand SCCO aims to partner with local enterprises as institutional members, encouraging business savings accounts and the potential for larger loans. Organisations like Midrand Local Economic Empowerment (MLEE) also support the formation of Midrand SCCO to provide services to local enterprises.”
Balancing growth with commitment to uplift communities
Unlike commercial entities—where growth might involve maximising profit margins—cooperative growth is often measured by increased member well-being and expanded social impact. A larger membership base means more people benefiting from affordable financial services and participating in wealth creation. This is a fundamental philosophical difference: growth in a cooperative context is not an end in itself but, rather, a means to deepen its social mission and uplift the community it serves.
“Essentially, the growth of Midrand SCCO is measured not just by financial metrics but by its expanding reach and positive impact on the economic well-being and financial inclusion of its members, many of whom come from historically disadvantaged backgrounds,” explains Mbedzi.
Deepening the social and economic impact of cooperative banks
The aim of the Midrand SCCO is to grow its membership, thereby expanding its reach and impact. Expanding digital services is also a critical strategy for the cooperative, to bridge geographical distances and reach more members efficiently.
As Mbedzi points out: “Leveraging on mobile banking and other digital platforms will significantly enhance financial inclusion, in particular by reaching a wider segment of the Midrand population. This also aligns with global trends in financial services innovation.”
There is also a plan to continuously promote a culture of savings/investment among members and by improving their financial literacy and money management skills.
Impediments to the Midrand SCCO’s mission for economic inclusion
In Mbedzi’s view, “beyond competition and initial capital, a significant impediment can be lack of public awareness and understanding of the cooperative model itself. Many people, accustomed to traditional banking, may not fully grasp the unique benefits and democratic nature of a cooperative bank.”
For her, education and consistent communication are vital in order to overcome this impediment. Another challenge, especially in volatile economic environments, can be managing loan delinquency rates if members face severe economic hardship, thereby requiring robust risk management alongside a compassionate approach.
The role of government in supporting economic inclusion
For Mbedzi, it is important that governments worldwide—and particularly in Africa—play a crucial role beyond just regulations. This includes providing incubation support, seed funding or matching grants for new cooperative financial institutions such as ours, and creating a favourable policy environment that explicitly promotes cooperatives as a tool for economic development and financial inclusion.
“They can also facilitate partnerships between cooperative banks and larger financial institutions or development agencies to enhance capacity, technology and outreach. Thereby, recognising cooperatives as a key pillar of the financial system is essential,” she adds.
Cooperative banks’ biggest advantage over commercial banks
According to Mbedzi, cooperative banks’ core advantage—beyond issues such as member ownership and lower costs—lies in their inherent resilience and stability, particularly during economic downturns.
“Because they are not driven by short-term profit maximisation or shareholder pressures, cooperative banks also tend to engage in more prudent lending practices and have a stronger focus on long-term sustainability for their members,” confirms Mbedzi.
“They are less prone to speculative risks that can destabilise traditional financial institutions, making them a more reliable financial partner for communities, especially in times of crisis. Their stability stems from their direct accountability to members, rather than external market forces.”
Ido Lekota is a former Sowetan Editor and regular contributor to Leadership Magazine.
