/ 11 September 2007

Co-op Banks Bill passed by National Assembly

Legislation providing for formal regulation and supervision of cooperative banks was adopted by the National Assembly on Tuesday.

Introducing debate on the Cooperative Banks Bill, Finance Minister Trevor Manuel said it seeks to create an appropriate regulatory framework for member-based deposit-taking, financial services cooperatives.

”By creating a sector-specific regulatory framework, the Cooperative Banks Bill also seeks to promote and advance the social and economic welfare of South Africans by enhancing access to banking services under sound and sustainable cooperative banks,” he said.

The aim is to promote access to financial services, particularly to the most vulnerable people characterised by low incomes and lack of access to mainstream financial products.

In 2004, the financial sector had launched the Financial Sector Charter, which culminated in some innovative initiatives that promoted access to financial services. The most prominent of these initiatives was a ”no-frills” basic bank account popularly known as the Mzansi bank account.

According to the Banking Association of South Africa, more than three million Mzansi accounts have been opened in the three years following the launch of the charter.

According to the Finscope (2006) survey, at least 49% of the total adult population in South Africa did not have access to banking services. ”This implies that in 2006, 15,27-million of the adult population was unbanked,” Manuel said.

While noting the major achievements made by commercial banks in providing banking services to the previously excluded sections of the community, the problem of access to financial services is too large to be tackled by commercial banks alone, the minister said. ”Community participation and some government intervention is required if we are to see success.”

The Bill is not proposing a new concept, but seeks to formalise an old international tradition of institutionalised self-help practices.

Cooperative banks have been in existence for centuries and are very successful in countries such as Germany, Australia, the United Kingdom, the United States, India, Brazil, Tanzania and Uganda.

In many of these countries, these cooperative banks have been successful because of deliberate government policies that support and advance their cause but also because of an existing dedicated regulatory framework.

The Bill provides for formal regulation and supervision of cooperative banks, creating a development framework to be implemented through a Development Agency for Cooperative Banks, and for the establishment of a deposit insurance fund aimed specifically at protecting the registered cooperative banks, Manuel said. — Sapa