BANKSETA CONFERENCE

1. BANKSETA CONFERENCE TRANSFORMATION AND THE UNBANK

2. 1. Introduction • SA successful transition to political democracy • Political stability and sound economic framework • However the socio-economic challenge is still daunting • Cannot be removed over-night • Thread to fledgling democracy

3. 2. The Global Transition • SA part of global transition • SA double paradigm shift • Three revolutions: Political democracy; market economy & knowledge economy • Global revolutions will bring enormous progress • Yet also the dangers of the fourth world

4. 3. The Development Challenges Of SA’s Transition • Five types of freedom (Sen): • Political • Economic facilities • Social opportunities • Transparency guarantees • Protective security

5. The Development Challenges Of • SA’s Transition (Cont.) • SA mixed results • Core and peripheral economy • Little trickle-down effects • Per capita income growth negative 1975 – 2000 • UNDP: Growth of 7.0% needed or 3.5% per capita • Even a 5% growth scenario may be optimistic

6. Income of the richest 20% grew by 60% (1975-2000) • Income of the poorest 40% declined by 60% • Unemployment between 29% and 40% • Growth of jobs in the financial, chemical and information technology fields • SA’s human development index .696 (Norway .942) • 35.8% of the population live on $2 a day • 11.5% on $1 a day • 34% of the population under the age of 15

7. 4. Access To Facilities • Marginalisation of 50% of the population • Modern and peripheral sectors not well integrated • New forms of economic growth will have to be created • The SMME sector crucial in this regard • Access to economic and other facilities germane to new growth • Will have to be increased significantly

8. 5. The Unbank: The Challenge Of A Unique Solution • SA very good banking system • Good networking system • Though complaints in rural areas • 72% of Blacks; 53% of Coloureds and 43% Indians do not have bank accounts • Use of bank accounts have declined • SA usage level 40%; Brazil 35% and Kenya 5%

9. Access particularly a problem in rural areas (35% live there) • 25% of the economically unbanked in informal settlements • 24% in townships • 1.9 million are pensioners and 2.9 million are students • The limited access of the poor limits savings mobilisation

10. Hence limits investment and the growth potential of the economy • Exert a negative influence on the stock of housing • Stokvels interesting example • Link between formal and informal systems • 60% of stokvel members have bank accounts • Could think anew • However, risk for commercial banks too high?

11. SA need to extend access to financial services on a wider basis • Reform of the banking system needed • Good examples of community banks exist overseas: Developed and developing countries • Community guarantee fund in USA

12. UNCTAD: • Importance of financing SMME’s which are not commercially bankable • Create suitable instruments and institutions • Provide services with different profit, risk and liquidity profiles • Extend credit to agricultural smallholders and small enterprises

13. Development banks and venture capital • And micro-credit institutions • Financial policies can create rents for the small financial institutions • Case for a three tier banking system in SA • Narrow, core and community banks

14. SARB positive • Also accepted at Nedlac • For government: • To promote a diversity of institutions that extend access • Encourage competition in the financial sector • Protect consumers from exploitation and abuse

15. Could make housing for the poor more affordable • New legislation required; Current exemptions to the Mutual banks Act has not increased access • Could describe minimum level of capital required for community banks • For these banks could allow deposit taking and extending of loans

16. At a next level: Transmission and account payments to clients • Participation and settlement services to clients and higher level • Several developing countries successful with savings mobilisation: Bolivia, Dominican Republic, Ecuador, Guatemala, Honduras and Nicaragua

17. Needed: • Access to credible institutions • Convenient service • Market returns • Security for savings

18. In Bangladesh 80% of the poor access to micro-financial services: 600-1000 institutions • Light regulation and indirect role by central bank • Adequate supervision and regulation required for savings mobilisation • SARB should not take on role for which it does not have the capacity or finances

19. Community banks can fund themselves through wholesale deposits and minimum intervention • If they grow: higher level of prudential, governance and risk management required • Regulation should provide investor protection and systemic stability

20. 6. Conclusion • SA in grip of double paradigm shift • Significant progress, though huge backlogs • Economic growth shows long term decline • Poor insufficient access to financial services • Constraint on savings mobilisation, investment and economic growth

21. Small enterprises denied access and prospective homeowners as well • Community banking or third tier can be successful • Light form of regulation required • Investor protection and systemic stability required