You can regard it as a bank with training wheels. It doesn’t even look like a bank. In some respects it isn’t.
The “Village Bank” at Mfekayi in central Zululand is a community bank, helping rural farmers to handle their money. It operates along the principles of a stokvel.
The concept of a community bank has been developed and refined over a decade or so. It has its origins in the North West province under the guidance of Richard Bates of Nthombo Agricultural Finance, a financial institution for small-scale sugar farmers.
“Through my work in assisting small rural farmers with financing, it became obvious that there was a need for a kind of in-between bank — something designed to assist unsophisticated rural farmers to gain confidence and experience so that they could tackle the world of finance. This is something that I have been developing over the past 25 years,” says Bates.
“In the early Nineties the agricultural industries went through a lot of turmoil with restructuring and deregulation and a drive to change the focus of agriculture to support small farmers.
“It then became necessary to design finance systems that would also be focused on small farmers.”
In 1998 the United States International Development Aid (USAid) made available a grant to establish a savings-based banking system that would become self-sufficient. The grant financed a pilot, three-year support programme.
This led to the establishment of the Financial Services Cooperative. Thirty-two branches were opened in the rural areas of Limpopo, Mpumalanga, KwaZulu-Natal, the Free State and the Eastern Cape. Like any bank, it offers financial services like deposit and withdrawal facilities and money transfers — but this is where the resemblance ends. It also offers an underwriting service for funerals and a loan service.
A member’s credit record would determine whether he or she is eligible for additional loans in future. The ceiling amount for loans is R1 000, depending on a member’s savings — a portion of this is used as collateral for the loan.
The interest rate for the loan is 5% a month — less than most micro-lenders (the bank skirts the regulations governing the commercial banks as it is exempt from the Banking Act).
All interest that accrues from these loans is reinvested or is paid out to the members as dividends.
The “community bank” is owned by the community members. There is a membership fee of R30 to join and then a share of R50 must be purchased. To open an account requires a minimum of R20. The bank’s members elect a board of directors. However, the bank is compelled in terms of its statutory requirements to strike up a relationship with a nearby commercial bank that will then offer training for the tellers and other support.
It appears to be a win-win situation — the community bank is not competing with commercial banks, although members can join a commercial bank once they have become confident money-handlers.
The benefits of such a bank are obvious — the service is accessible to the lowest income groups: rural communities. In addition, the staff and members come from the immediate community and all know each other; risks are small, and “big brother” banks are just around the corner to provide guidance.
“I was the first teller here at Mfekayi,” says Siphesihle Mlambo, now the bank manager of Mfekayi Village Bank.
“We opened in December 1999. Now we have 288 members, we have R200 000 in our savings account, we have assisted 48 businesses, we have two trained tellers, we offer nine financial products and we have just started generating a profit.”
The bad news is that this Cinderella bank is about to hear the chimes of midnight — the USAid funding culminates at the end of this month. From then on the fledgling community banks have to operate on their own.
Will these banks be able to survive without their fairy godmothers?
Pumla Khena, community bank liaison officer for First National Bank, believes that losing the safety net of donor funding will only help the village banks to get their house in order more quickly.
“USAid has indicated it would like to work with us in addressing these challenges,” she says. “We are going to be working with it as a matter of urgency, because this is a new concept we must be prepared to deal with as we go along in our quest for the perfect model.”