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State bank launch an overdue transformation imperative

The stokvel sector in South Africa continues to be unbanked, and this is the service that a state bank should be pursuing, says the writer. Picture: Reuters

The stokvel sector in South Africa continues to be unbanked, and this is the service that a state bank should be pursuing, says the writer. Picture: Reuters

Published Mar 27, 2022


By Isobel Frye

Globally state banks provide cheaper commercial banking for poor people, collect savings that are loaned on to small businesses, and ensure competition to private banks.

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Volkskas was a prime example of a fourth objective, which was to build economic muscle to advance political dominance as it did for the apartheid National Party. The current day formal financial sector in South Africa appears to have no interest in creating a banking product that meets the needs of the vast informal stokvel savings sector in South Africa.

Likewise, the formal financial sector seems unable or unwilling to meet its targets for supporting black SMMEs. Without letting the financial sector off the hook for not meeting its transformation targets, it seems that it would be a clear win for the state to establish a commercial vehicle providing safe banking on attractive terms to the informal stokvel sector and use those funds for low cost SMME loans.

A state bank is neither a development finance institute or a central or reserve bank. It is a commercial bank with the state as sole shareholder. In Germany there is a strong tradition dating back to the 1700s of localised savings banks that typically have a municipality as their single shareholder.

The banks have three aims: to provide affordable commercial banking facilities to poor people, to enable people to accumulate savings which are available as loans to local micro entrepreneurs, and to provide competition for the private banks.

Today the sector constitutes around 40% of commercial banking in Germany. South Africa has made great strides in recent years in banking the “unbanked”. By 2018, 80% of South Africans were considered to be financially included in some sense.

Since 2010, the Postbank has operated as a fully fledged bank, according to its website. The Postbank in fact offers a specific South African Social Security Agency (Sassa) bank account for beneficiaries of social security cash grants, which might be one of the reasons that the poor now have transactional bank accounts.

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About 40% of the 9.8 million R350 Covid grants paid into banks in February were paid into Postbank accounts. But the stokvel sector continues to be unbanked, and this is the service that a state bank should be pursuing.

According to FinMark Trust, in 2018 the value of the informal savings stokvel sector amounted to R44 billion per annum, coming from around 820000 stokvels.

Membership of informal savings groups is growing faster than GDP. In 2019, just under 25% of adults belonged to a stokvel. This was a 6% growth from the previous year. We constantly hear about the lack of a savings culture in South Africa.

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Clearly what we lack is a responsive banking sector that offers services that the stokvel sector considers meets its needs. Informal savings are used for very sensible, developmental ends.

Stokvel savings are used for household construction and renovation, school fees and other educational costs, setting up and running small businesses and contingency emergency funds. All of these make sound financial sense.

The poor have a parallel system through which they save and build and accumulate assets including human capital development and make provision to mitigate against potential shocks that would otherwise put people in the power of the pirateering mashonisas (money lender).

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An amount of R44 billion is a huge amount of money that is sitting outside of the formal sector. It is a dire indictment of the banks that people do not trust their savings to the formal financial sector. This is where a state bank is needed.

The case of the Volkskas Bank provides a clear example of a symbiotic arrangement that benefited poor savers while providing the economic base for the political monster of the apartheid National Party.

This symbiosis was a creature of thorough planning and scrupulous implementation. In 1933, the Broederbond resolved to set up a savings co-operative for Afrikaners with two very specific objectives.

The first was to provide savings facilities to “unbanked” poor whites who were not covered by big three banks – Barclays, Standard Bank and the Netherlands Bank (Nedbank) – as part of the solution of the poor white problem. The second was to build their economic power which was necessary to win political power which the National Party did in 1948. In 1934, the People’s Bank (Volkskas) opened with £600 subscribed capital. By 1947 this had increased to more than £1.1m.

In 1940 the savings co-operative registered as a commercial bank. After the National Party came to power, state banking and state contracts were increasingly granted to Volkskas. And in the 1960s Volkskas began to finance industrial activities.

A great local case study of transformation. So there are three lessons for us.

First, the transformative impact of a state bank is not achieved overnight, but it can have a formidable potential.

Second, social upliftment can be successfully piggybacked with building economic leverage, and thirdly, there is a significant pool of savings that could be accommodated through a state bank if the design of the bank addresses people’s needs and allays their fears.

And it could be loaned on to SMMEs, providing capital to those whom the current formal financial system is failing. The introduction of a state bank should not exonerate the unconscionable failures of the formal financial sector machinery, including the oversight bodies, to meet their transformative targets.

But a clever state bank could step in and provide what is needed, leaving the state to prosecute transformation failings.

* Frye is the Director of the Studies in Poverty and Inequality Institute

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