Banks need to go beyond BEE to help country meet its transformation goals
• Banking sector has backed large deals, but funding small and medium enterprises will help create employment
As institutions that provide funding and credit to both consumers and businesses, commercial banks should be seen as key catalysts for SA’s socioeconomic transformation. Commercial banks have the power to influence ownership of, and participation in, the formal economy, not merely by doing black economic empowerment (BEE) deals that generally benefit only a few, but to make an impact on a larger part of society through significant financial support for black small businesses so that they in turn can help create employment.
Simply put, while BEE deals are noble, these transactions have so far had a limited role in building operational companies that create a large number of jobs. Many BEE companies remain investment companies that create only a few direct jobs compared to operational small and medium enterprises, which each employ an average of five or more people.
As a banker it is painful to confess that the country’s banking industry has been found wanting when it comes to providing funding for small and medium enterprises. Yes, commercial banks have a duty to safeguard and grow the capital raised from depositors and other institutional investors by lending responsibly. However, statistics show South African banks have largely preferred to lend to large corporates and individuals, many of whom borrow for consumption purposes, rather than to small businesses.
There are about 13 locally owned registered banks with banking licences in SA, but the quantum of support for small black businesses appears inadequate. About 33% of SA’s banking institutions are locally controlled, 15% are foreign owned, 36% are branches of international banks and the remainder includes mutual banks and others. The finance sector plays a big role in terms of employment and contribution to the economy. About 14% of total employment in SA came from the finance sector in 2015, and the industry had an average contribution of 20.9% to gross domestic product.
PwC’s analysis of SA’s major banks, released in September 2016, showed that finance to small and medium enterprises by the financial sector between 2004 and 2010 was only R16bn. Although small businesses fail often due to bureaucracy, lack of appropriate skills and training, high costs of labour and local supplies, the difficulty in accessing funding remains an issue.
In 2016 SA dropped from 22nd to 32nd place on ease of obtaining loans, according to a Bureau of Economic Research report on small- and mediumsized enterprises commissioned for the Small Enterprise Development Agency.
One of the biggest complaints by black owners of the enterprises has been the lack of funding or the ease of gaining access to funding. As a result there has been a lot of noise to start a black-owned bank. These hortatory remarks are not new — in 1957 a group of black Africans led by Prof JK Matthews circulated a confidential memorandum about the need to start a deposit-receiving institution for Africans. The raison d’être for this was that Africans often deposited sums of money into white-owned institutions and largely got nothing other than “the safe custody of his money plus a small rate of interest”.
The memorandum went on to say that “the African farmer or business man who wants credit facilities or the professional man who wants to build his own home finds there is no friendly financial institution to which he can turn for assistance”.
Unfortunately, close to 60 years later many still echo this call as they struggle to get home loans on untitled land and finance for their small businesses. Some are of the view that the state should establish its own national investment bank with a mission to seek out and back such projects. Others argue that such a black bank already exists and has been there since 1975. However, its challenge has been capital to lend to a broader set of clients.
Ubank has remained 100% controlled by a trust whose beneficiaries are black, despite the fact that black ownership has regressed in SA’s major banks partly due to the maturing of BEE deals.
Ubank is not just a black bank by name. It was the bank that decided to roll out financial services to the neglected black mine workers many decades ago, when many financial institutions did not bother with this market. It understands the black working middle class and the financial needs of the rural market very well. Its senior managers are predominantly black, with Africans making up 86.9% of staff.
One of its visions has been to fund a number of former mine workers who aspire to build solid small and medium enterprises. Many of these former mine workers in the platinum belt, gold fields and other labour sending areas have been retrenched, while others have taken early retirement. This has left many vulnerable to poverty as the payment packages are often not enough to last for a life time.
Rather than condemning them to poverty, at Ubank we saw an opportunity to finance those who have aspirations to build enterprises that can supply the mining sector and other industries in SA with goods and services. We saw an opportunity to transform a group of mine workers from the classical proletariat to a meaningful petty bourgeoisie that creates jobs.
However, Ubank’s vision will be enhanced through securing additional capital. Although Ubank continues to lend to many mine workers, largely at a retail banking level, we are raising much-needed capital, which is key to building a business bank that will improve the socioeconomic position of small business. Given the necessary resources, we could provide funding to small and medium businesses in a way that impacts on communities across the broader spectrum of our society in the middle working class.
STATISTICS SHOW BANKS HAVE PREFERRED TO LEND TO CORPORATES AND INDIVIDUALS, MANY OF WHOM BORROW FOR CONSUMPTION PURPOSES ONE OF THE BIGGEST COMPLAINTS BY BLACK OWNERS OF THE ENTERPRISES HAS BEEN THE LACK OF FUNDING OR EASE OF GAINING ACCESS TO FUNDING