Establishing more cooperative banks will change the exclusionary financial sector
Many small traders and entrepreneurs stand to gain access to necessary credit
The South African Communist Party aims to drive the establishment of cooperative banks.
This is a progressive move as South Africa seriously needs cooperative banks.
Many South Africans cannot access banking services offered by commercial private banks, especially credit facilities.
This financial exclusion affects the self-employed, small traders and cooperative enterprises. Most of these affected people are located in townships, informal settlements, rural areas and major cities.
The 2007 Cooperative Banks Act set out the parameters for the development of the cooperative banking movement over the past 10 years.
The legislation is applied and monitored by the Cooperative Banks Development Agency, which is part of the National Treasury and Reserve Bank.
Nevertheless, the current legislative and regulatory framework has not been fully implemented.
It has some weaknesses and still requires examination, particularly in terms of its efficacy to enable the development of a thriving cooperatives banking sector.
Nevertheless, the framework provides an opportunity for millions of people to create, own and run their own cooperative banks.
Legally speaking, it can take up to R250-million in capital for a few but wealthy people to form a private commercial bank.
But it takes less than R1million for a group of persons to form their own cooperative bank.
A cooperative bank is a financial institution organised by its members to meet their common financial needs.
This is what distinguishes this type of bank from commercial private banks which are established for profit maximisation.
A cooperative bank is democratically owned and controlled by its members.
It is organised around a group of people – the legal minimum being 200 persons – with a common bond.
It can be organised by a workplace, a community in a defined geographic area or an association like a trade union or taxi association.
Depending on their level of development, cooperatives can be categorised as cooperative financial institutions or credit unions.
In order to join, a cooperative bank’s members invest an agreed amount called a membership share. This membership share allows members to be owners of the bank.
It entitles them to share its revenue (defined as “surplus”) and to elect a board of directors and other committees to direct and control its activities.
A cooperative bank can offer many of the same services provided by commercial private banks, but it exists to provide a safe, convenient place for members to deposit or save money or obtain financial assistance at low cost.
It applies the philosophy of high interest rates on savings and low interest rates on loans.
A lack of awareness and the minimal promotion of cooperative banks has led to their slow pace of development.
Cooperative banks now number just over 30, with total assets of over R300million and around 30 000 members. In 2016, they had collectively R200-million out on loan.
In comparison with other countries, the South African cooperative banking sector is very small.
The most promising growth is from the National Health Education and Allied Workers Union – the largest public sector union – with more than 11 000 members joining their cooperative as memberowners.
Thanks to the SACP’s resolution and determination, the cooperative bank movement stands to grow, expand and cover more and more workers and communities.