1. PRESENTATION TO THE PORTFOLIO COMMITTEE ON SMALL BUSINESS DEVELOPMENT
31 January 2018,
Cape Town
PRESENTATION TO THE PORTFOLIO COMMITTEE ON SMALL BUSINESS DEVELOPMENT
“Towards a Sustained Cooperatives
Banking and Economic Integration ”

2. Architectural construct
Cooperatives
Cooperatives Banks
Cooperative Financial Institutions
International Financial Construct
Structure of South African economy
Gross Domestic Product
Government Debt
Radicalised Economic Transformation
Binding Constraints
Strategic Corrective Interventions

3. Co-operative’s banking vision
Facilitation of financial inclusion AND sector competition
CURRENT REALITY
Financial sector concentration, monopoly, inefficiencies, economic sluggishness

4. Socio-economic realism
SA financial sector is a microcosm of bigger economy – highly concreated and monopolised
SA banking sector is dominated by the Big Four which controls over (90% of banking sector (Standard Bank, ABSA, First Rand and Nedbank)
non-banking sector is dominated by the savings and insurance subsectors
Long-term insurance, short-term insurance, savings and investment industry controls assets of about R9.4 trillion1 , about half of which is from the retirement savings subsector (R4.7 trillion), and the other half from Life Offices (R2.6 trillion) and Unit Trusts (R1.8 trillion), and short term insurance (R156 billion)
Long-term insurance market is highly concentrated with the top four players (Old Mutual, Sanlam, MMI Group and Liberty) accounting for 67% of the total assets of Life Offices, while 69 players share the remaining 33% South Africa has about 130 asset management companies who manage assets of about R9 trillion but only R408.3 billion (or 4.6%) of the total assets of the sector is managed by black asset management companies3
Existing economic transformation measures, incl Financial Service Charter, have all have been less effective
Millions remains unbanked and outside banking sector and transactional banking costs and fees are exorbitant and prohibitive

5. Financial cooperatives economy
Financial cooperatives have become a significant global phenomenon Their major growth driver during and after the global financial crises is their ability to withstand macroeconomic shocks to their balance sheets, thus, wining the confidence of many people
Financial cooperatives are able to help create middle classes in societies as they provide an entry to the formal financial system
existence of a broad middle class contributes to political and economic stability
Imperative of radicalized societal transformation in South Africa –
unemployment, poverty and huge income inequality (GINI index of 63.4)
The NDP (2030) is the current economic and social policy pushing for an equitable social change through economic empowerment, making financial cooperatives one of the various mechanisms to that realization
In SA, most of financial cooperatives and cooperative bank members are from the working class and poor in townships and rural villages and derive their income from the CFIs and, many, from social grants
Globally - Germany, Kenya, Philippines, Ireland, USA financial co-operatives are big and at times multinational institutions
Examples : (Harvard University Credit Unions, Zenex Bank, Qantas Credit Union)

6. Kenya, Philippines, Ireland
Financial cooperative pays a levy that is then used to fund the Regulator Supported by a large CFI industry US
regulator Receives a substantial portion of its funding requirement from the government
South Africa Government funding Low levy for certain processes and services e.g. registration paid by CFIs Ability to increase or add new levies constrained by market size and performance

7. SA Binding constraints
Sector manages assets of about R280 million
Cooperatives Banks and CFI are seen as inferior and governed by the Cooperatives Act of 2005 to stay inferior and stunted growth
NACFISA represents 28 CFIs and 2 cooperative banks with a total membership of about
Financial cooperatives face some regulatory burden making compliance cost very high
Lack of capacity, skills, and have a futuristic vision and prepare for change
Poor outreach strategy, poor governance and risk management structures; inability to attract the right talent; low product diversification; high operating costs; and low diffusion of technology innovation in operations
Lack of participation on the National Payment System
Low adoption of technological banking systems
Tight cash flow positions
Lack of innovation to develop appropriate financial products
High operating costs making losses
Need for fundamental shift of Co-operative Banking

8. New thinking construct
Fundamental mindset shit - perception that financial co-operatives are the poor person’s bank
Strong paradigm shift that financial cooperatives could be small, medium and big
Created by communities – SKA Orania wherein all community members contribute
Created by professionals – Harvard University Credit Union or Qantas credit union
Changes of business to become co-operatives
Need for a separate regulatory regime, but integrated with prudential regulation and market conduct
New Model must take into account the imperatives of the National Development Plan
New Model must take a long term horizon which is disaggregated into annual targets – (SMART – Simple, Measurable, Achievable, Realistic and Time bound)
New Model be premised on “Vision 2040” of fundamental industry transformation with CBDA at the centre of such discourse
Plus 20 year horizons for Stabilisation, Stimulation and Real Sustenance of the Industry
The New Radicalised Sector Model (“5 Vectors”)

9. New construct vectors
1. New Value Proposition “ Towards A New Construct”
Financial cooperatives are businesses
“New Construct” financial cooperatives or cooperatives are stablished only with the social purpose of serving poor communities, but are commercial construct to create wealth for their members, promote financial inclusion and real transform
Financial cooperatives appeal to cross sectors of the society
Financial cooperatives to formulate policies and outreach strategies to draw membership from a cross-section of the population to achieve balanced mix of funding and membership
CBDA is the fulcrum of financial cooperatives sector building and sustainability
Need for new terminology for South Africa - “Financial Cooperative” and/or “Cooperatives Banks”, (do away with other confusing terminology

10. Model unpacked 2. Re-engineering and Growth
legislative changes is required to promote them to a broader population mix
Participation on the National Payment System
Laxing the external credit cap of 15% to total assets
Adoption of technological banking systems
Concessionary tax framework for co-operatives to promote savings and industry sustainability
Tax exemption status for CFIs as they are social enterprises
Government entities to also save in CFIs as juristic members
Financial cooperatives to contribute for the deposit insurance protection
Redesigning model not dominated by savings and credit only
More branches in other provinces
Possibility of issuing transactional cards for convenience
Easy access to credit for financial cooperatives members compared from banks and Developmental Finance institutions
Build integrated national financial cooperatives banking system

11. Model unpacked 3. Financial Sustainability
Institutional support and robustness - CBDA
The regulatory reform allowed CFIs to drive membership by relaxing the common bond restriction to multiple bonds
retain talent through competitive market salaries
Annul ringfenced allocation of R100m for Stabilisation Fund
Financial Services Charter and industry players and National Treasury
Build of strong capital base to absorb credit risk
Deposit insurance guarantee protection to members
Strong corporate governance structures
Once funding R5 billion from Financial Service Charter and window fall of banking monopoly fines
Strengthening savings culture among members
Robust managerial skills - profitably & sustainably
Diversified product offerings
Business and technological innovation - improve convenience, efficiencies
Reduce operating costs making losses
Stronger financial sustainability to attract strategic “blue chip” stakeholder interest
CBDA allowed to resources funding beyond the national fiscus and create strategic relations with national and international organisations

12. Model unpacked 4. Market Trust - Triple Trust
Leadership, management, risk management
Strong banking and business skills – transactional banking skills
Marketing of the financial cooperatives as concept to the greater public
Increase allocation to CBDA budget to R100m per annum (base line) to ensure capacity building and building of financial co-operatives movement in SA
Building of strong co-operatives movement in SA
Attractive premises to appeal to the middle & upper class
Rebranding CFI concept to appeal to all classes
Improving members saving culture through financial literacy
National campaigns to encourage people to join local cooperative banking organisations
Free capacity building from CBDA and BANKSETA
Improved financial literacy
Establishment of an advisory unit that assists provincial, local government and municipalities to develop the CFI sector at a fee

13. 5. Institutional Resilience and Superior Performance
CBDA to be reconfigured with a new Vision of “becoming premier institution to facilitate building of o robust financial cooperatives geared towards improving financial inclusion, wealth creation, sector competitiveness and economic and financial transformation”
CBDA needs facilitate 10% of the financial cooperatives growth in the South African financial markets in the next 30 years
CBDA to focus on capacity building and strategic partnership development for industry sustainability
CBDA positioned as a premier financial cooperatives organisation and centre of excellence for government, private sector and non-governmental players
CBDA resident technology for industry superior performance
CBDA build integrated national financial cooperatives banking system
Build internal cutting edge research and modelling and repository for financial cooperatives knowledge
CBDA offer financial services and retail banking skills for industry and self growth
All government to cooperate and partners with CBDA
CBDA strong outreach and information massification
Financial sustainability of CBDA – R100m per annum (base line)
CBDA pursue a new vision as a development agency and geared towards “facilitating financial inclusion, economic transfer nation and sector competitiveness in order to grow the cooperative banking”

14. Cbda : functional role Model
Capacity
Building & Development
Central Support Services
Liquidity Support
(Stabilisation Fund)
Supervision & Regulation
Co-operative Banks Act of 2007 (as amended)
Banks Act Exemption Notice 620 of 2014
Co-operatives Act of 2005 (as amended)
National Credit Act of 2005

15. Organisational market
Targeted
Function
Registered Co-operative Banks (only capacity building)
CFIs working towards registering as Co-operative Banks
Support Organisations and Representative Bodies
Organised groups e.g. employer groups, associations, unions wanting to form CFIs
Other Co-operatives – CFIs at the centre of the Value Chain
Register, regulate and supervise CFIs (until March 2018)
Promote, register & regulate representative bodies
Facilitate, promote & fund education & training to enhance the work of CFIs
Provide liquidity support through loans or grants, (Stabilisation Fund not yet operational)
Enhance CFI Operational Capability (Shared back office services)

16. accomplishments Sector qualifications- UP Certificate & UFH Diploma
Initiated the Banking Platform Project
Publications
Deepened
stakeholder relationships
Sector curriculum- Governance, Financial Management, Supervisory committee, Credit committee
Developed sector performance standards and Rules

17. Sector challenges Cooperatives Banks and CFIs are seen as inferior
Absence of payroll deductions
Regulatory burden making compliance cost very high
Lack of capacity, skills, futuristic vision and preparedness for change

18. Sector challenges
Poor outreach strategy, poor governance & risk management structures; inability to attract the right talent; low product diversification
Fragmentation of Gov Support via Agencies & Products not aligned to the needs of the CFIs (high IR, CFIs excluded in support)
Regulator & Dev Agency not aligned – growth strategies for the sector (common bond, investments etc.)

19. Sector challenges Lack of participation on the National Payment System
Low adoption of technological banking systems
Tight cash flow positions resulting in weak capital base
Lack of innovation to develop appropriate financial products
High operating costs & limited revenue generation opportunities

20. Overcoming challenges
Fast track the use of technology (Banking Platform Project must be fully funded)
Establish a National Co-operative Bank with a government stake (eliminate the need to use the big 4 banks)
Channel government funding for SMEs and Co-operatives via the CFIs

21. Overcoming challenges
Allow payroll deductions for savings and loans
Establish a deposit insurance fund for the CFIs (to be incorporated with the one for large banks)
Need for political will & Government wide support to establish a Co- operative Bank for Public servants/Large SOC/MPs etc

22. Overcoming challenges
Intensify collaboration between CBDA and Stakeholders (political level)
Increase the budget for the CBDA (R100m)
Establish provincial offices for the CBDA (SEDA/SEFA/Prov DEDs)
Fundamental mind-set shit - perception that financial co-operatives are the poor person’s bank
Need for a separate regulatory regime, but integrated with prudential regulation and market conduct

23. Latest developments
CBDA supervision unit moved to SARB on the 9th of October 2017
The CFI rules are currently under revision
Regulatory impact assessment conducted by ICURN
Commissioned work – Development of National Co-operative Banking Strategy

24. Critical success factors
Finalisation and adoption of National Cooperatives Banking Strategy
New Value proposition and Financial Sustainability Model
Location of the CBDA (NT, DSBD, Market Conduct, Financial Sector Dev Agency)
Productive Support: government and private sector for Co-op Banking
CBDA Budget (from R20 m to R100m)

25. Sector size internationally
No.
Country
Assets
Penetration rate 1
United States
$1 trillion
47.6% 2
Canada
$283 billion
43.2% 3
Australia
$ 75 billion
29.9% 4
India
$ 60 billion
2.5% 5
Thailand
$ 56.3 billion
8.3% 6
Korea
$ 55.6 billion
15.9% 7
Brazil
$ 39 billion
4.3% 8
Ireland
$ 19 billion
74.7% 9
Ecuador
$ 8 billion
47.1% 10
Mexico
$ 6 Billion
6.5%
Source: WOCCU 2014 Statistical Report

26. Global Sector International Africa
dimension of the coop banking movement…
About 60,000 co-op banks in the world serving
Over 200-million people in
101 countries with
$1,2 –trillion in savings deposits,
over $1-trillion in loans &
over $1.6-trillion in assets
Total assets - $8 billion
Kenya no. 11 worldwide - total assets $5 billion & no. 1 in Africa, it accounts for 63% of Africa’s total assets (for CFIs)
Tanzania - No. 2 in Africa - total assets $599m
Swaziland No 1 - Southern Africa - total assets of $100m
South Africa No total assets of $23 million and Zambia no. 3 - total assets $19 million
South Africa - penetration rate 0.1%, - 2nd lowest worldwide
Penetration rate is calculated by dividing the total number of reported CFI members by the economically active population age 15–64 years old

37. Banking Hall – Police Sacco in Kenya

40. CBDA
The End….

41. Additional information

42. Cbda budget AUDITED OUTCOME R thousand 2010/11 2011/12 2012/13 2013/14
AUDITED OUTCOME
R thousand
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
Transfers
Application fees
35 000
9 000
16 250
12 011
3 895
10 000
10 200
Interest income
43 394
Stakeholder funding

43. Table 1- Registered and deregistered co-operative financial institutions
31 August
2017
 Name
Date of registration
 Total deposits
 Total capital
Net income / Loss
Bakenberg FSC
16/04/2013
1,637,177
545,675
33,491
Boikago SACCO
12/04/2013
3,939,875
2,485,049
152,476
GIG CFI
10/2/2015
2,072,434
3,134,709
-183,543
Kings Grange FSC
04/04/2014
222,347
109,780
-95,100
Kleinfontein SACCO
10/02/2015
36,929,244
1,781,179
61,333
Kuvhanganyani FSC
04/04/2013
KwaMachi FSC
09/04/2013
KwaZulu Ladies Empowerment FSC
27/03/2013
4,591,281
696,374
-53,432
Medical Primary Financial Cooperative
01/12/2016
1,299,000
631,580
-604,894
Mutapa FSC
711,768
318,546
-6,034
Nagrik FSC
30/05/2013
2,314,085
1,385,699
-77,542
Nehawu
27/08/2013
16,054,482
8,503,018
73,094
Oranjekas SACCO
19/02/2015
38,887,703
2,563,649
-8,524
SAMWU SACCO
30/07/2015
8,960,975
-39,965
-51,712
Webbers SACCO
2,605,344
7,064,597
534,264

44. Cont. Young Women Business Network 02/12/2015 5,603,323 5,096,801
24,240
Ziphakamise SACCO
27/03/2013
4,072,348
1,216,418
276,581
Eyakwethu
24/05/2016
Greater Tzaneen
16/04/2015
Imvelo Agricultural Co-operative
16/3/2016
Mzansi Rural Arts and Crafts
25/05/2016
161,731
112,183
-2,297
Nnathele FSC
29/05/2013
SAWBCC
17/10/2016
312,959
184,503
18,890
Sekhukhune
22/01/2016
Thari Entso FSV
16/01/2014
169,150
195,335
-1,526
Worcester Community SACCO
12/09/2014
34,842
356,965
-8,944

45. Deregistered CFIs Date of Deregistration Deregistered CEBISA FSC
Date of
Deregistration
Deregistered
CEBISA FSC
03/02/2017
Mathabatha FSC
14/03/2017
Mmetlakhola Stokvel FSC
10/02/2017
Motswedi FSC
29/03/2016
Ubambiswano SFSC
24/04/2017
NIC SACCO
26/10/2015
Mpumalanga Farmers
19/02/2016
Sibanye SACCO
09/12/2014
FSC Inzuzo
17/03/2014
Flash SACCO
29/05/2014

46. CFI by Location
Total number of CFIs