Out in the cold: Commercial banks have failed to finance the sectors
with the greatest potential to create jobs. Photo: David Harrison
South Africa’s banking system is one of the most concentrated and exclusionary in the world. A handful of powerful commercial banks dominate the sector, posting obscene profits while millions of people are locked out of meaningful access to finance.
In a country scarred by colonial dispossession, apartheid and racial capitalism, this is a system working as designed — to serve capital, not people. Commercial banks operate on one principle: profit maximisation. In an unequal society, the principle entrenches inequality. Those with wealth are rewarded with cheap credit, personalised services and financial flexibility. Those without wealth are punished — charged to exist in the banking system.
The poor, overwhelmingly black and coloured, pay monthly fees just to hold an account.
They are hammered by transaction costs, punitive penalties and extortionate interest rates on unsecured credit. This is systematic financial extraction from the working class and the poor.
Instead of financing productive investment, industrialisation and inclusive growth, commercial banks profit from debt and financial speculation. Low-income workers are targeted via high-interest loans that lock households into permanent indebtedness.
Informal traders, township businesses, cooperatives and rural enterprises are denied affordable credit because they do not conform to narrow risk models built around established, formal and historically white-owned enterprises.
Even social grants — money meant to alleviate poverty — have been turned into profit streams for private banks. Grant beneficiaries are charged to access their own money.
Their accounts are linked to predatory financial products that push loans, insurance and overdrafts onto the poorest households. This is private capital extracting value from poverty, underwritten by the democratic state. This is quiet privatisation of social welfare.
The reality demands a structural response, not tinkering at the margins. A state-owned bank is a necessary intervention to break the grip of private finance over the lives of the poor. Importantly, this demand is not isolated from the political will of society. The majority party, the ANC, has a conference resolution calling for the establishment of a state bank.
The political mandate exists. What is lacking is the courage to confront the financial sector and act decisively in the public interest.
A state-owned bank’s mandate would be public service: financial inclusion, developmental lending, industrialisation, job creation and the reduction of household debt. It would ensure that money circulates within public institutions, rather than leaking into private profit.
The argument that state-owned institutions are corrupt or doomed to fail is lazy and dishonest.
The Government Employees Medical Scheme stands as a clear counterexample. Gems has successfully provided affordable, reliable healthcare coverage to public servants at scale. It proves that when governance, regulation and public purpose are taken seriously, state-led institutions can and do work.
The failure of some state-owned entities does not invalidate public ownership. It indicts political interference, weak oversight and elite capture — problems that also plague the private sector but are conveniently ignored there.
One immediate step should be to channel all South African Social Security Agency payments through a state-owned bank. Social grants are public funds. Allowing private banks to skim fees and profits from them is indefensible. A state-owned bank could provide zero-fee, secure accounts, shield beneficiaries from predatory lending and ensure grants serve their purpose: poverty alleviation.
The same must apply to public sector wages. Teachers, nurses, police officers and other public servants should be banked through a state-owned bank. This would create a stable deposit base, reduce the state’s indirect subsidisation of private banks and strengthen a public financial institution that serves the public interest.
The logic extends to students and young people.
The National Student Financial Aid Scheme (NSFAS) funds are public money meant to support education and human development. They should not be deposited into private banks that exploit students via fees and debt traps. NSFAS deposits should be housed in a public youth bank designed to meet the needs of students and young adults. It could offer zero-fee accounts, financial literacy support, affordable credit and savings instruments that empower young people rather than indebting them before they enter the labour market.
Beyond payments and deposits, the real power of a state-owned bank lies in developmental finance. Commercial banks have failed to finance small and medium enterprises, black-owned businesses, cooperatives, township economies and rural enterprises — the sectors with the greatest potential to create jobs and transform the economy.
A state-owned bank could provide low-interest capital to productive sectors such as manufacturing, agriculture, energy and infrastructure. It could align lending with national development and industrial policy instead of short-term profit targets. This is how real economic transformation is financed.
Financial exclusion is economic exclusion. Without affordable banking, savings instruments and access to credit, the poor are locked out of entrepreneurship, asset building and wealth creation. A state-owned bank could offer basic accounts with no minimum balances, non-exploitative micro-credit and support for cooperative and community-based financial models. This is not charity. It is an investment in people and productive capacity.
A state-owned bank will not magically resolve South Africa’s economic crisis. Strong governance, transparency and accountability are non-negotiable. But in a society shaped by racialised dispossession and deliberate financial exclusion, it is a necessary reform.
Andile Lungisa is an ANC NEC member and former ANC Youth League deputy president.