Sunday Times

Now for the dif­fi­cult bit: im­ple­men­ta­tion

- Andile Khu­malo Khu­malo is an en­tre­pre­neur and a CA (SA)

Fol­low­ing the gazetting of the new amended Fi­nan­cial Sec­tor Code late last year, the sec­tor’s old char­ter coun­cil re­named it­self the Fi­nan­cial Sec­tor Trans­for­ma­tion Coun­cil last week, giv­ing us an op­por­tu­nity to in­ter­act with the new BEE rules for banks and in­sur­ers, all aimed at ac­cel­er­at­ing trans­for­ma­tion in the most crit­i­cal sec­tor of our econ­omy.

The likes of the Bank­ing As­so­ci­a­tion of SA and the As­so­ci­a­tion of Black Se­cu­ri­ties and In­vest­ment Pro­fes­sion­als have recog­nised the pow­er­ful lever­age the fi­nan­cial ser­vices in­dus­try car­ries in driv­ing the type and pace of trans­for­ma­tion South Africans want to see.

Many el­e­ments, though not new, have been sharp­ened for a more tar­geted im­pact. For ex­am­ple, two unique el­e­ments ex­ist in the Fi­nan­cial Sec­tor Code that are not in the generic codes: em­pow­er­ment fi­nanc­ing and ac­cess to fi­nan­cial ser­vices.

The con­cept of find­ing ways to “bank the un­banked” is not new. The sec­tor has in the past tried to ad­dress this by launch­ing all sorts of prod­ucts, all of which tanked.

Go­ing through the amended Fi­nan­cial Sec­tor Code, how­ever, it is clear the sec­tor has learnt from its mis­takes, and has this time around put to­gether a set of rules that can hold banks and in­sur­ance com­pa­nies ac­count­able for their role in sup­port­ing in­vest­ments that ben­e­fit the ma­jor­ity of South Africans, and sup­port­ing and fi­nanc­ing black-owned busi­nesses. The tar­gets are quite ag­gres­sive, es­pe­cially in the sec­tor-spe­cific el­e­ments, and that is en­cour­ag­ing.

How­ever, one won­ders to what ex­tent the in­dus­try is ready to meet these tar­gets, and, per­haps more im­por­tant, to what ex­tent the black peo­ple the rules are in­tended to serve are ready to take ad­van­tage of the new op­por­tu­ni­ties of­fered.

Take, for in­stance, em­pow­er­ment fi­nanc­ing, which com­prises tar­geted in­vest­ments and black busi­ness growth fund­ing. In sum­mary, banks and in­sur­ers will be mea­sured and in­cen­tivised to fi­nance or ex­tend credit for “trans­for­ma­tional in­fra­struc­ture projects aimed at sup­port­ing eco­nomic de­vel­op­ment in un­der­de­vel­oped ar­eas and con­trib­ute to eq­ui­table ac­cess to eco­nomic re­sources”.

The in­fra­struc­ture projects in­clude ma­jor trans­port, en­ergy and wa­ter projects, tele­coms and mu­nic­i­pal ser­vices. Tar­geted in­vest­ments in the code specif­i­cally in­clude agri­cul­tural de­vel­op­ment — which is all about pro­vid­ing in­te­grated sup­port and fi­nance to black farm­ers — and af­ford­able hous­ing. The tar­get for such in­vest­ments is R48bn for banks and R27bn for long-term as­sur­ers.

The sec­tor is also in­cen­tivised to pro­vide broad-based BEE trans­ac­tion fi­nanc­ing. This is not new, and is some­thing of an anom­aly. If there is a BBBEE deal to be done, banks by their na­ture will al­ways be the ones to fund it, out­side of a few de­vel­op­ment fi­nance in­sti­tu­tions. It makes no sense that we “praise the fish for swim­ming”.

The other thing learnt about BBBEE deals is that they fo­cus only on a change of share­hold­ing, typ­i­cally from white­con­trolled to black-em­pow­ered. There is, on its own, no value add when shares change hands. Value is cre­ated when new busi­nesses start or ex­ist­ing ones grow — hence this new con­cept of black busi­ness growth fund­ing.

It is an at­tempt to fo­cus the sec­tor on sup­port­ing and fund­ing black-owned and black­man­aged busi­ness to grow and, in the process, em­ploy more peo­ple. Why does this make sense? Well, 92% of our pop­u­la­tion is black. If you want the econ­omy to grow and ab­sorb its labour force, you want to get black peo­ple eco­nom­i­cally ac­tive. This also gives the gov­ern­ment a bet­ter chance at solv­ing is­sues in health care and ed­u­ca­tion, and ad­dress­ing law­less­ness.

But there is a smal­l­anyana prob­lem with this 92%. The vast ma­jor­ity of them will not land any bank fi­nance as they don’t bring with them any so­cial cap­i­tal or col­lat­eral. The en­tire sys­tem needs to be over­hauled if banks are gen­uine about ex­tend­ing credit to black peo­ple and help­ing to trans­form this econ­omy.

For one, the risk ma­trix needs to be looked at, and those banks that take on more risk than oth­ers in ex­tend­ing credit should be re­warded with more BBBEE points. This would en­sure that we are not sim­ply re­ward­ing lenders for throw­ing money at the same black peo­ple, but are recog­nis­ing those lenders who are solv­ing the prob­lem at its core — how to in­crease the pool of eco­nom­i­cally ac­tive black South Africans, and get more peo­ple out­side the econ­omy into the econ­omy.

The amended Fi­nan­cial Sec­tor Code is, for many, rea­sons, a pro­gres­sive doc­u­ment that has been put to­gether by sober minds. That is to be com­mended.

Now for the re­ally hard work: im­ple­men­ta­tion.

It is clear that the fi­nan­cial ser­vices sec­tor has learnt from its mis­takes

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