Ithala SOC Limited chief executive Thulani Vilakazi
Ithala SOC Limited chief executive Thulani Vilakazi believes the institution can meet the conditions imposed by the Financial Sector Conduct Authority (FSCA) to soon resume banking activities.
Vilakazi told the Mail & Guardian this week that Ithala, a subsidiary of KwaZulu-Natal’s Ithala Development Finance Corporation Limited, was “no VBS” — a reference to the failed Limpopo-based mutual bank — and he was confident that it would clear the hurdles set by the regulatory authority.
Ithala is not a bank but has been allowed to operate as one through a series of temporary exemptions from the Banking Act. But its exemption was revoked by the FSCA in August over its failure to meet regulatory requirements.
The suspension of its licence means that Ithala cannot open new accounts or issue new loans to the 27 000 stokvels and more than 1 000 cooperatives it services in mainly rural KwaZulu-Natal until the regulator’s concerns are addressed.
Last month it made an application to have the suspension lifted but this failed. A second attempt will be made in October by Ithala, a developmental institution that falls under KwaZulu-Natal’s economic development and tourism department.
Vilakazi said although Ithala had faced regulatory difficulties, these were not insurmountable and it had presented a plan both to meet the requirements and to push ahead with the plan to secure a permanent banking licence.
“Any institution that has gone through what Ithala has gone through would have experienced a depositor run, but we have not,” he said. “We have not had a depositor run because our clients are loyal and they understand what we do.
“We have not done anything that is an unlawful activity. We are not a Ponzi scheme. We are not PwC. We are not a VBS. There are issues of compliance which we have dealt with and we are of the view that we are now fully compliant with section 50 of the Banks Act. We have done everything by the book.”
Ithala has played a crucial developmental role in KwaZulu-Natal since the last century, providing banking services to people living in townships and rural areas that are not serviced by the commercial banks.
It continues to do so, servicing stokvels and cooperatives in 36 towns in the province, bringing banking closer to people who would otherwise have to travel to bigger centres. It has about 500 000 clients, many of whom use a savings book.
Ithala is also the only institution providing finance to people living on land falling under the Ingonyama Trust — nearly three million hectares of the province — who are issued with permission to occupy (PTO) certificates and not title deeds.
While it has played this developmental role, Ithala earned a reputation for being a piggy bank for the politically connected in the province under a series of ANC administrations.
But it has earned a clean audit from the Auditor General of South Africa for the past 10 years and has met regulatory requirements of the National Credit Regulator and other bodies.
Vilakazi said Ithala’s board and committees were fully compliant with the Prudential Authority, while the entity had also undertaken an upgrade to its informational technology systems to address regulatory concerns.
He believes that in the longer term there needs to be an intervention by policymakers, not to influence the decision of the FSCA, but to create a framework that will allow Ithala to secure a banking licence.
Part of Ithala’s difficulty was legislative as amendments to the Act passed in 2019 did not take into account its existence as a legally constituted entity of provincial government and only allowed for the creation of a “national” state bank, he said.
This “conundrum” meant that a legally constituted entity that had existed since before the dawn of democracy was now being “de-legitimised” by a legislative process that has not taken its existence into account.
“There is a public interest aspect to Ithala which comes from the mandate and the historical role that it has played. We have a presence in areas that were redlined historically, where there was no lending, on commercial banks,” Vilakazi said.
“Ithala has created a form of ecosystem in rural areas in KwaZulu-Natal. If there was no Ithala, there would be no town called Jozini.”
Last month parliament’s standing committee on finance held talks with Ithala’s leadership, the Prudential Authority and the FSCA in Durban to address their concerns about prudential compliance, risk management and corporate governance.
After the meeting, chairperson Joe Maswanganyi said the committee was determined to ensure that Ithala survived and continued to fulfil its developmental role.
“Our visit here is to ensure that a bank with the developmental mandate, such as Ithala, does not die on our watch,” he said. “The great history of the bank, which was established in 1958, and the critical services it provides to rural communities is important and cannot be erased.”
In a statement, the FSCA said the suspension was effective from July 2024 and that it meant Ithala was prohibited from doing any new business and would have to take “reasonable steps” to ensure that outstanding business was transferred to another authorised financial service provider.
Ithala had made an application to the Financial Services Tribunal for the decision to revoke its exemption to be reconsidered and temporarily suspended pending the outcome of this application.
This was declined on 22 August and a date for a second reconsideration application was still being set.