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Address to the 2003 Annual General Meeting of the Savings and Credit Co-operatives' League

"Forward to a Co-operative Banking Sector in South Africa"

Durban, 12 July 2003

By Blade Nzimande, Chairperson of the Financial Sector Campaign Coalition and General Secretary South African Communist Party

As the Financial Sector Campaign Coalition, we wish to congratulate the Savings and Credit Co-operatives' League (SACCOL) for holding this Annual General Meeting on the even of the 1st anniversary of the NEDLAC Summit on the Financial Sector which was held in August last year.

The work of SACCOL remains an inspiration and affirmation that our struggle to transform and diversify the financial sector is correct. We also congratulate you for having convened a successful conference on Co-operative Banking in South Africa. We look forward to receive a report and briefing on the outcomes of this Co-operative Banking Conference as we move forward to restructure and consolidate the Financial Sector Campaign Coalition. A central objective of the Coalition is the promotion of co-operative banking.

We hope and trust that through this AGM you can help to focus the attention of our country to the question of the importance of mobilising savings as part of economic growth and development.

1. ECONOMIC GROWTH AND DEVELOPMENT

Through the SACP-led campaign to make banks server the people, we have repeatedly advanced arguments on how the financial sector in our country fails to contribute to economic growth and development through, amongst other things, creating a suitable environment for savings and productive investment.

SACCOs and co-operatives in general are extremely important for the social values that they can help to nurture. Co-operatives build on traditions of collective endeavour, they are more attuned to the spirit of vuk' uzenzele (than free market competition) that we are seeking to deepen, and they can, therefore, play an important role in the moral regeneration of our society.

SACCOs and a co-operative banking sector are part of building social capital which is in the hands of the people. In this way, SACCOs and a co-operative banking sector can play a central role in ensuring that umnotho wonke usezandleni zabamtu.

We are pleased that this potential of co-operatives is being recognised in government through the agreement reached at the Growth and Development Summit and the policy documents released by the Department of Trade and Industry. However, we have a long way to go.

2. SOUTH AFRICAN'S FINANCIAL SECTOR CONTINUES TO EXCLUDE MILLIONS

In the last few months we have witnessed some media reports on the Financial Services Charter and the celebration of so-called "Black Economic Empowerment" in the financial sector in our country. Investec, Standard Bank, Bidvest and People's Bank have all made announcements on "BEE" deals. But little attention has been paid to whether these deals actually address the many issues raised in the NEDLAC Agreement on the Financial Sector reached in August last year at the Financial Sector Summit. Not much has been said about the fact that this Financial Services Charter is being negotiated behind closed doors without the participation of the broader South African public.

The Financial Sector Campaign Coalition calls for an open , public and democratic mass-driven process on the Financial Services Charter. If this Charter remains confined to boardrooms, it is doubtful whether this Charter can really address the fundamental problems affecting the financial sector in our country.

In fact, it is very possible that the Financial Services Charter can end up promoting narrow black economic elite empowerment at the expense of the broad-based economic empowerment which is at the core of the NEDLAC Agreement on the Financial Sector. Indeed, sections of private capital see the Financial Services Charter as a way out of this NEDLAC Agreement.

NEDLAC Agreement

It is therefore necessary that we remind ourselves of what the NEDLAC Agreement. In summary the agreements reached were as follows:

a) The regulation of credit bureaux to ensure that they provide reliable and appropriate information to lenders b) The establishment of enabling legislation for co-operative banks, and proposals on support for co-operative banks and not-for-profit micro-lenders - the agreement details elements for legislation ion co-operative banks including powers of a registered co-operative bank; requirements for registration; membership and shares; prudential requirements; deposit insurance and loans; the role of the envisaged registrar; registration issues; and the establishment of the co-operative bank forum and support for co-operative banks and non-profit micro-lenders c) The need for legislation on so-called second and third tier deposit-taking financial institutions d) Measures to end unfair discrimination in the financial sector - the agreement identifies the critical areas as the envisaged overarching framework, redlining and HIV/AIDS e) Measures to extend basic financial services f) Proposals to guide capital markets and investment into developmental projects g) A joint analysis of the state-owned financial institutions to see how they can contribute more to developmental aims h) A framework for the regulation of the financial sector including the regulation of the micro-lending sector i) Proposals for an initiative to increase savings. j) Ensuring that all South Africans have access to training programmes that empower them to deal with financial institutions and processes.

Implementation of the NEDLAC Agreement

To monitor implementation of the above agreements and related developments, the parties also agreed that the NEDLAC financial sector task team will meet once a month or as necessary to review progress and consider new results. The parties also committed themselves that an annual high-level meeting of the NEDLAC constituencies in the financial sector should review progress, analyse problems and agree on new initiatives where appropriate.

The key areas of the agreements, which are being negotiated currently for implementation by a NEDLAC Finance Sector Task Team, which has met regularly since February 2003, are:

  • Regulation of Credit Bureaux
  • Research on Capital Markets and Investments
  • Compulsory Mortgage Insurance
  • Ending HIV/AIDS Discrimination
  • Access to Basic Financial Services

The Department of Trade and Industry published Draft Regulations of the Credit Bureaux in April this year and called for public comments until the end of June after which the regulations will be finalised under the Unfair Business Practices Act. The regulations will be implemented by a representative liaison committee and an ombud. The draft regulations require credit Bureaux to take responsibility for the accuracy of the information they store and provide. This also makes it possible for a consumer to dispute credit information in order that credit Bureaux may correct information within five days of a complaint. The new regulations also propose that consumers may access their credit information without any charges. The new regulations also require that companies sending a negative credit rating to credit Bureaux must inform consumers in writing within a month of this action.

However, there are a number of issues that must be contained in the final regulations. These include the need for sufficient protection of consumer privacy and confidentiality, minimum standards for consumer protection and operation of credit grantors and Bureaux and the need to investigate and outlaw the denial of employment to those listed on the credit bureaux.

In addition, the Coalition has called on the DTI and the Parliamentary Portfolio Committee to call public hearings on the Regulation of Credit Bureaux. These public hearings and the final regulations from the DTI will be an important opportunity for public mobilisation and agitation. We call on SACCOL and all itse members to ensure that they utilise these public hearings to support the regulation of Credit Bureaux by also linking this regulation to the advantages that SACCOs offer to members and society as a whole as opposed to the punitive approach of redit Bureaux. .

On ending HIV/AIDS discrimination, during February, the Life Officers' Association (LOA) tabled a draft proposal for automatic HIV/AIDS cover of up to R100 000 for mortgage insurance for all applicants living with HIV/AIDS. The objective of the scheme is to provide access to mortgages for those living with HIV and to avoid the social dilemma of evicting dependants, which often includes children, from their homes. The proposal is still under discussion. This is a potentially and important victory that the Coalition can and must publicly claim and utilise.

On funeral insurances, the Coalition has also discovered that many funeral insurance companies exclude HIV/AIDS cover in their policies. We are currently mobilising affected consumers and members of the Coalition to ensure that we pressurise funeral insurance companies to bring this practice to an end. In the future, SACCOs, the South African Federation of Burial Societies and a co-operative banking sector can ensure that they directly compete and eventually overcome these capitalist vultures who pretend to be providing funeral services to our people whilst actually chasing maximum profits.

On the removal of unfair discrimination, the Life Officers' Association has also tabled a draft Code on Equality to govern life insurances. This is being discussed in the task team set up by NEDLAC. In this regard, the Coalition must consider seriously whether it is not time to call for an audit of equality and discrimination in the financial sector as a whole. Such an audit will go a long way to uncover ongoing discrimination and thus put additional pressure on the financial sector.

There is a need to link the implementation of the NEDLAC Financial Sector Agreement to the implementation of the agreement of the Growth and Development Summit given the emphasis of the GDS agreement on the need to mobilise domestic resources through the identification of investable funds into the sectors of the economy that will stimulate job creation linked to an expanded Public Works Programme.

In brief, that is how far we are with the implementation of the NEDLAC Financial Sector Agreement. Progress has been made but much more still lies ahead.

The way forward

Despite the NEDLAC agreement, private commercial banks continue to deny credit to poor and working people through stringent requirements for opening bank accounts and accessing loans for basic needs. Banks continue to fund luxury expenditure by the rich. All the problems we identified, criticised and fought against in October 2000 remain and some have worsened.

Despite the "BEE" deals, the commercial banks will remain undemocratic institutions privately owned and controlled by players in the economy largely motivated by profit maximisation.

It is for the above reasons that we reiterate the aims behind the campaign to transform and diversify the financial sector in our country. The Financial Sector Campaign Coalition is also gearing to consolidate itself so that it can drive the implementation of the NEDLAC Agreement. In August we will be holding a National Consultative Forum which will, amongst other things, debate and discuss a three-year programme of action based on the NEDLAC Financial Sector Agreement.

In summary the envisaged three-year programme of action has identified the following goals:

  • Mobilisation of communities, workers and civil society behind the aims, objectives and programmes of the Coalition
  • Research, lobbying, advocacy and social mobilisation to ensure the realisation and implementation of the NEDLAC Financial Sector Agreement
  • The mobilisation of communities and workers to build co-operative banks
  • Removal of HIV/AIDS and other unfair discrimination in the financial sector
  • Utilising the constitution and the courts to remove unfair discrimination in general
  • The outlawing of redlining and the enactment of community reinvestment legislation
  • Proposals and action on the transformation and expansion of Postbank
  • Increased consumer awareness, power and claiming of rights by consumers in the financial sector, the debt consolidation and management industry, and the micro-lending industry
  • Workers' empowerment and mobilisation behind the democratisation and transformation of pension and provident funds including the demand for prescribed assets
  • Mobilising of human, financial, organisational and other resources to build the capacity of the Coalition and member organisations to achieve the above aims, objectives and tasks

The proposed three-year programme has set targets and deadlines for achieving all the above. Central in the envisaged three-year programme of the Financial Sector Campaign Forum, is the need to intensify the struggle for the building of a conducive policy and legislative environment for the promotion of a co-operative banking sector and other publicly owned financial institutions.

Regarding litigation, the three-year programme of action argues that litigation is an important and integral part of the campaign as it will help establish precedents and rights, and thus increase pressure on the financial sector. Whilst the constitutional framework is favourable, litigation against the financial sector needs to be strategic and almost 100% guaranteed of success with as few legal difficulties as possible. Litigation against the financial sector will be an important utilisation of the legal system by poor people as opposed to current domination of our courts by resourced people.

In any court case, the finance sector will definitely argue for, and protect their interest to make profits in terms of the constitutional right to freedom of trade and to engage in economic activity and that the interests of society at large will be undermined if they are not entitled to engage in business and make profits. No South African court will dispute this. Therefore we cannot afford to lose any case on what could possibly be the first challenge to the Equality Act as far as discrimination in the finance sector is involved.

It is with these strategic litigation considerations in mind that during August the Financial Sector Campaign Coalition will launch a programme of mass protests against AVBOB and other funeral insurance companies as part of mobilising communities to come out and lay charges against HIV/AIDS discrimination by funeral insurance companies.

We therefore call on SACCOL to ensure that the National Consultative Forum of the Financial Sector Campaign Coalition to be held in August is a success. The Coalition also calls for the holding of an annual high-level meeting of the NEDLAC constituencies in the financial sector to review progress, analyse problems, set deadlines and commit resources to the implementation of the NEDLAC Financial Sector Agreement.

3. TOWARDS A CO-OPERATIVE BANKING SECTOR

The NEDLAC Summit on the Financial Sector, held in August 2002, reached a substantial agreement on what needs to be done to promote a co-operative banking sector. This agreement was taken forward and consolidated at the Growth and Development Summit.

We also note that the National Treasury has also started a process to explore how to ensure access to financial services.. But indications are that government and the Reserve Bank have a limited understanding of the full scope of lifeline banking services.

Co-operative banking legislation now

The Reserve Bank has been talking to many other parties on draft regulations and legislation and there is no clear understanding by the social partners in NEDLAC how far the processes are.

We welcome the recent concession by the Reserve Bank to raise the cap for SACCOs from R10 million to R50 million. This concession is inadequate and ad-hoc.

Clearly, the Reserve Bank is on its own mission, sidelining community and labour focus on cooperative banking. The Reserve Bank is talking about for-profit community development institutions (CDIs) with no specific focus on SACCOs and the co-operative banking option. The Reserve Bank is seriously considering draft regulations and legislation in this regard and this would undermine the development of co-operative banks in a serious way. The Reserve Bank has done this as if there is no NEDLAC agreement as if it does not about the problems facing SACCOs as if it has not met and discussed these with SACCOL on numerous occasions.

In our considered view, the Reserve Bank process is not in line with the framework agreement reached at the NEDLAC Summit on enabling legislation and support for co-operative banking. This needs to be addressed as it is not clear what motivations and interests drive the Reserve Bank as these could permanently block the enactment of a conducive legislative environment for co-operative banking. The Financial Sector Campaign Coalition calls on the National Treasury and Cabinet to ensure that co-operative banking legislation is introduced to parliament during this year. We call on the Reserve Bank to withhold its CDI initiative pending the introduction of co-operative banking legislation in parliament.

At the end of the day, the sustainable growth and multiplication of SACCOs everywhere is our guaranteed weapon to open the doors and ensure that the legislative and regulatory environment favours the optimal growth and development of the co-operative banking sector in our country. Through building and sustaining SACCOs everywhere we would be building our own financial and mobilisational muscle whilst also triggering the legislative process.

The case of auto-workers

A debt research (Research Report for the Automobile Industry National Bargaining Forum on the Debt Burden of Auto Workers) was conducted recently across the 7 assembly plants in South Africa. According to this study, on the payroll statistics covering 15,000 workers , all wage earners have at least 1 loan and 1 insurance premium and .5 of a garnishee order. This same study found that at least 17% of industry net pay is absorbed by financial service providers and garnishee orders making this the single biggest category of employee spend when compared to (other) statutory, medical and retirement spend. A third to half the industry workforce has debt ranging between 20-25% of their net pay on payroll.

According to this same study, high levels of debt can affect people in lots of different ways including absenteeism, dismissal/resignation, loss in productivity/quality, negative impact on social and family life and the reduction of workers' bargaining power.

According to the researchers, there are just three solutions to the debt crisis facing auto-workers. These solutions are providing education and/or counselling aimed at increasing the financial knowledge and skills of workers; putting a cap/ceiling on debit orders aimed at increasing take-home pay and consolidating all debt to allow for easier debt management and reduced cost of interest. The solutions proposed by the researchers in this study reveal that the SACCO option is not widely known in our country. As implied above, this throws a massive challenge to the Financial Sector Campaign Coalition and SACCOL. Over the next year we have to redouble our efforts to ensure that we encourage trade unions, workers, hawkers, spaza shops, teachers, nurses, other professionals to build SACCOs as a sustainable mechanism to collectively grow savings and ensure access to affordable credit.

4. CONCLUSION

It is opportune for me to feel a part of SACCOL because very soon (from October this year) I will be a member of the Dora Tamana Savings and Credit Co-operative which will, as I will ensure, that it is a member of SACCOL. Perhaps, in the future I will be able to attend a SACCOL AGM as a delegate of the Dora Tamana SACCO. With these few words, I wish your AGM every success.

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