Transformation of the Financial Sector: 22 March public hearings

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Finance Standing Committee

22 March 2017
Chairperson: Mr Y Carrim (ANC) and Ms J Fubbs (ANC)
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Meeting Summary

The Finance and Trade and Industry Committees held joint public hearings on Transformation of the Financial Sector. Members felt the transformation pace was slow and had to be sped up.

Submissions emphasised the need for radical transformation and redressing the apartheid legacy. They noted that the private sector was not willing to transform on its own. Cooperatives Financial Institutions’ (CFI) representatives submitted that the financial sector was not willing to transform on its own and they felt undermined by the regulatory frameworks of the financial sector. The Cooperative Bank Act was not supportive enough to the development of cooperatives in the financial sector.

The German Cooperative and Raiffeisen Confederation (DGRV) shared the German experience on cooperative banking and highlighted that CFIs enable broadbased participation in the economy, a sense of ownership as people possess their own bank, promote development and employment creation through SMMEs, decentralise the financial system and improve the GINI-coefficient.

The National Apex Cooperative of South Africa said the organisation looked at transformation from the perspective of self-help and capacitation of communities. There was need for the creation of a sustainable inclusive cooperative ecosystem to serve the impoverished majority. CFIs, in the current model, were “glorified stokvels” and had to be transformed into fully fledged banks. It was time to take cooperative banking seriously as it was a workable model in other countries. More political will was needed.

The Broad-Based Black Economic Empowerment Commission and National Empowerment Fund emphasised the need for more robust structures to ensure financial inclusion and the creation of a state-owned bank. The B-BBEE Commission noted that access to funding continued to be a challenge for black people, creating a fertile ground for fronting.

The South African Reserve Bank explained its mandate to create an enabling environment for a stable financial system that advances transformation and access to financial services amongst all people. However, there were significant advantages to having a few large well-capitalised banks as opposed to having many small and medium banks. The resilience to a financial crisis was one example - big banks are better able to withstand shocks as they would be generating revenue from a diverse range of businesses.

Nedbank Group said transformation was more than compliance with any codes; it was a moral and business imperative. Society as a whole was better off with an inclusive banking system. Transformation needs to be a catalyst for the higher levels of inclusive growth South Africa needs. Nedbank provided a record of its progress over the last ten years.

Members commended Nedbank Group for being a clear leader in transformation as evidenced by its achievements in employment equity at the top layers of its management structure and other milestones it has recorded in the past decade.  They asked about the ‘once empowered, always empowered’ concept; how prudential requirements affected CFIs and how the scope could be widened to ensure the growth of CFIs; how much was needed to establish a cooperative bank in Germany. Members highlighted that transformation had to move beyond management to ownership and control. Mr Shivambu said it was high time the Reserve Bank became state-owned.

The Black Insurance Owners Association said if no transformation takes place in this sector, then transformation across all other sectors will be inhibited as the financial sector is the sector that will finance transformation. Sector Charters are failing to enforce transformation because compliance is not mandatory but voluntary. They asked that legislation be crafted to allow more black players to penetrate the market and also accused the Reserve Bank of deliberately facilitating the exclusion of new players in the financial sector. Government should emphasize that 70% of procurement remains reserved for white firms rather than stating that 30% of procurement is reserved for black firms as this demonstrates the ridiculousness of the policy.
 
The Black Management Forum (BMF) said the Financial Services Charter is unnecessary because it is minimalist and introduces meaningless language such as the concept of “equity equivalent” as there is nothing equivalent to owning, either you own or you do not. Small regional banks such as VBS and Ubank ought to be supported to help them compete with the industry’s big players. The Competition Tribunal should not merely fine companies but should arrest the executive directors for collusion. A commission of enquiry was called upon to investigate racial discrimination by the financial sector. The BMF considers 51% to be ownership but the Sector Code goes lower than that and suggests 25% as ownership.
 
Insurance as a subsector of the financial sector was declared the most untransformed which is ridiculous because the majority of that sector’s clients are black individuals. Forfeiture of premiums as a result of nonpayment brought about because of affordability, retrenchment, dismissals and retirement should be stopped.

OSIBA Holdings identified two instruments that help in mitigating the risk of starting up a business: business advisory services – such as the Sizanani scheme – play a key role in helping start-ups and credit guarantees which are given by the state and enable entrepreneurs to get funding. These two facilities used to exist in the past and government and banks should come up with such schemes or create alternatives

The South African Auto-Repairs and Salvage Association said black panel beaters struggle to access business controlled by short term insurance businesses. The monopolies and the cartels are impenetrable. The short term insurance companies have a restrictive and racist procurement practice. At present, 95% of repairers on insurance panels are white and as such the black spectrum has almost been completely annihilated. It was stressed that the sector cannot self regulate.

CASISA spoke about contrived liquidations which is a method in which entities liquidate companies they owe a duty to. The result is that the liquidated company cannot sue and be sued. It was alleged that the courts were corrupted in a highly coordinated manner and that the banks essentially had control of the registrar and the Master’s Office. The practice of banks having houses auctioned for as little as R100 was outrageous.

Payment Solutions spoke about the high cost of credit which is largely caused by a lack of effective competition, high overhead costs, lack of alternative sources to bank funding, lack of transparency about collections and the management of collections in the financial sector. The inefficiency of the financial sector is characterised by collection fees, origination fees, contract fees and administration fees adding to the cost of lending. The life of the worker today has to be transformed and cheap lending costs have to be facilitated. A solution was a centralised collection agency to distribute amounts collected equitably amongst creditors. Such a deduction and collection mechanism is rule based, cost effective, reliable and would be available to all players in financial services.

The Limpopo Secondary Financial Forum had travelled 24 hours in a taxi to come and give its submission about its trials as a cooperative in South Africa in trying to qualify to be a Cooperative Financial Institution. The requirements are cumbersome and prohibitive such as needing to have a membership of at least 200 people, R100 000 in share capital, a fully furnished office, with staff complement and company stationery. They are just small players who cannot meet all these requirements and these are barriers to entry.

Individuals also spoke about their experience of alleged abuse by banks and insurance companies.

Meeting report

The Chairperson for the morning session, Mr Y Carrim (ANC), in his opening remarks, emphasised that it was the view of government that financial sector transformation had to be sped up. He encouraged stakeholders to engage in more dialogue on the issue.

South African Reserve Bank (SARB) submission
Mr Kuben Naidoo, SARB Deputy Governor, said that the Reserve Bank’s objective was to create an enabling environment for a stable financial system that serves customers and advances transformation and access to financial services amongst all people. He took the Committee through the path the financial sector has taken since the dawn of democracy. There has been an increase in bank concentration since 1994. In 1994, South Africa had 35 registered banks and the number has gone down to 16 as at 2016. Between 1998 and 2002, the country went through a miniature banking crisis that saw 22 small and medium banks closing shop. Many explanations have been put forward to explain the turbulence in that period, namely the impact of the Asian crisis, exchange rate depreciation in 1998 and 2001, mismanagement, and consolidation and in some cases voluntary surrender of banking licences by the banks. The period shook up the financial sector such that it led to more concentration within the financial services sector.

He pointed out the dichotomy between stability and competition or concentration in the banking sector. Financial stability and market concentration run in opposite directions, which presents a dilemma for policy makers. Better capitalisation may mean stability but there were risks in the competition front. SARB prefers a stable banking system but recognises the inherent risks of concentrated markets and takes them into account, and tries to address these risks. He however explained that concentration led to more stability in the financial sector. He gave an example of Nigeria with around 80 registered banks but said numbers did not translate to financial inclusion - South Africa ranks higher in terms of financial inclusion compared to Nigeria. He emphasised that robust oversight from the competition authority has kept prices at competitive levels.

Mr Naidoo highlighted that banks held R4.87 trillion worth of assets, 112% of GDP. There has been significant growth of small players within the banking sector. He gave the example of Capitec which grew its customer base from one to eight million within a short space of time. He also pointed out a general reduction in retail banking prices in the last decade as evidence of a well-functioning sector.

Bank concentration was not unique to South Africa, citing examples of developed countries with less than five dominant banks, such as Australia and Canada. There were significant advantages to having few large well-capitalised banks as opposed to having many small and medium banks. The resilience to a financial crisis was one example - big banks are better able to withstand shocks as they could be generating revenue from a diverse range of businesses. Also, he outlined the systemic advantages, risks and mitigating factors associated with concentration. SARB has buffers and regulatory measures to mitigate risks associated with bank concentration.

In conclusion, he took the Committee through the steps involved in registering a bank or changing bank ownership and emphasised that public interest considerations, as part of the criteria to be met by prospective bankers, include transformation. He added that the development of the payment system was meant to foster financial inclusion.

Broad Based Black Economic Empowerment Commission (B-BBEE) submission
Ms Zodwa Ntuli, Acting Commissioner: B-BBEE Commission, said that the Commission recognised the need for economic transformation and equality but it was difficult for B-BBEE to succeed if the financial sector was not compliant. She identified obstacles such as the once empowered, always empowered principle; which creates regression of transformation, sector codes that are not finalised; thereby creating confusion in the markets, and some entities being denied benefits arising from revised generic codes. She noted that access to funding continues to be a challenge for black people, creating a fertile ground for fronting. Lack of implementation by Government and its entities also affected pace of transformation.

Ms Ntuli emphasised that it was not the progress that they were worried about, but the pace thereof – pace of transformation was slow and regressing in some instances. She identified poor reporting within the financial sector which affects the ability to monitor, and compromises achievement of targets. Financial markets were characterised by complex monopolies with high barriers to entry and high capital costs. She noted that development finance was not increasing in line with the need to grow the economy – the bulk of credit was for consumption rather than investment purposes.
Ms Ntuli said the B-BBEE Commission believes that the Financial Sector Code in its current form does not advance radical economic transformation, but rather regresses it. The sector code appears to compromise the incentive for financial sector players to compete by subjecting products on which they should compete on to transformational interventions. Also, the financial sector impacts a number of sectors from the perspective of financing, and if lending is to be recognised for points, it must be at seriously preferential rates or conditions for black people.
She emphasised that it was impossible for B-BBEE to achieve its targets if the financial sector was not forthcoming. She made reference to lending practices that were not supportive towards the development of small business. Discussions around radical transformation were important and had to be accelerated.

National Empowerment Fund (NEF) submission
Ms Philisiwe Mthethwa, NEF: CEO, said it was apparent that the country was still far from reaching its objectives of transforming the economy. It was evident that the financial services sector is unable, or unwilling, to meet the needs of the majority of the people. This therefore warrants a radical shift on how black people, supported by Government, should lead in the establishment of an alternative offering of a directly black-owned bank.

She noted that the current empowerment frameworks, ushered in by the amended 2013 Black Economic Empowerment Codes spoke to efforts towards supporting the rise of black industrialists, and the importance of localisation. The current wave towards transformation will lead to economic growth - it was no longer about passive shareholding in non-core assets. She commented that transformation has remained a voluntary process and it is of paramount importance for all participants to comply with the Codes.

She noted the pivotal role of the Financial Services Charter (FSC). However the FSC has been ineffective in transforming the financial services sector to bring about the meaningful and sustainable economic empowerment of black people in South Africa. It was saddening because the FSC was also not explicit enough in spearheading empowerment of women.

Ms Mthethwa submitted recommendations for improving the financial sector. Recommendations include increased funding for targeted investments and black industrialisation, improving on the target for access to financial services, conformity to Enterprise and Supplier Development (ESD), allocation of additional points for ESD compliance, prevention of value leakage, and empowerment financing. She emphasised the need to promote and provide black people with opportunities to acquire shares in State Owned Enterprises.

Discussion
Ms T Tobias (ANC) commented that B-BBEE was pivotal in spearheading the transformation agenda. The NEF does not engage the financial sector thoroughly; there was need for more aggression in negotiations towards the establishment of a state-owned bank. She urged NEF to be the leading partner in making the private sector understand why a state-owned bank was needed. A state-owned bank is not meant to be a commercial bank but a vehicle to fund job creation efforts.

She asked how the NEF has so far engaged the private sector in the selling of equity positions. She asked what targets have been put in place to break the Johannesburg Stock Exchange glass ceiling. Current JSE black shareholding was not enough. She asked about the impact of black industrialists in the economy as whole.

Mr D Maynier (DA) said that he wrote to the Governor of the Reserve Bank requesting the Reserve Bank to investigate whether the relevant banks had complied with the Financial Intelligence Centre and international obligations in respect of the closure of the so-called Oakbay accounts. He asked if investigations were launched and asked Mr Naidoo to shed some light on the current status of the investigations. It took ABSA Bank more than 14 months to close the Oakbay companies’ accounts, and he asked if SARB shared his concerns on that. He asked if SARB’s Banking Supervision Department had the will and capacity to effectively supervise banks with respect to politically exposed persons.

Mr G Hill-Lewis (DA) asked for the difference between formulaic and substantive empowerment of impoverished communities, and their experiences within the banking industry. Between 2015 and 2016, he wrote to the Reserve Bank asking for a full audit into the more than two million credit agreements in the African Bank so that the credit agreements could be written off. Despite Reserve Bank agreeing that reckless credit had become a risk within the financial sector, SARB had refused to heed call for bank audits to address reckless credit after the collapse of African Bank. It was important to put on record that when SARB had the critical opportunity to support real and substantive empowerment of the people of South Africa suffering under the burden of over-indebtedness, it chose instead to defend the collateral of its loans to the failed bank.

Mr Hill-Lewis commented that the B-BBEE Amendment Act passed in 2013 allows the Commission to carry out its investigations proactively. He asked if B-BBEE had launched investigations on what seems to be fairly blatant fronting by Cash Paymaster Services in its engagements with Government. Amabhungane carried out extensive investigations into this and found some appalling evidence which on the face of it seems to be a case of fronting. He asked if the B-BBEE Commission had carried out investigations of its own on the allegations and requested an update.

Mr S Buthelezi (ANC) observed that submissions confirmed that there was little transformation within the financial services sector. It was important to have discussions around financial sector transformation as it affects all the sectors of the economy. He asked Mr Naidoo to shed some light on the ownership structure and control of SARB. He noted that Ms Ntuli spoke about company net equity value at the consummation of BEE deals. He asked at which point B-BBBEE measures a company’s net equity value as there were allegations of abuse such that B-BBEE participants do not accrue any benefits after the lock-in period. He asked what the Commission could do if it found out that no value had been accrued by BEE participants. He asked if it was possible for the Commission to be involved in the drafting of the contracts between companies as most were meant to undermine BEE from the get go.

Mr B Topham (DA) commented that he favoured the objective measurement criteria used by B-BBEE in score cards. He however expressed concern on the perception that empowerment level certification was not robust. He asked NEF about the impact of the dividend tax increases on empowerment funding. He asked the Reserve Bank if the 49% shareholding by foreigners was realistic or if it was going to be reduced overtime. He asked if there was a possibility for some form of fee reduction for black-owned mutual banks without putting the financial system in jeopardy.

Mr F Shivambu (EFF) remarked that the National Empowerment Fund was a dismal failure. He pointed out its capitalisation since its inception vis-à-vis the size of the South African economy and assets held by the financial sector. The conceptual foundation and the whole approach to the discourse around NEF were wrong. He was going to submit proposals on how the Fund could deal with issues differently.
 
Mr Shivambu said the B-BBEE Commission was “useless”. He pointed out that legislation to some extent gave it teeth to act on cases of non-compliance, but the Commission was always talking about referring some cases for prosecution. What makes it useless was a problematic conceptual framework in evaluating compliance of white-owned companies. He pointed out that even the agencies that evaluated BEE compliance were white-owned companies; when there was a B-BBEE Commission that was supposed to be dealing with such issues.
 
Mr Shivambu commented that the discontinuation of private ownership to allow for state ownership of SARB was necessary. He identified the need for more engagement between the Committee and SARB, citing that the current Governor had only appeared once before the Standing Committee on Finance.

Mr P Mabe (ANC) commented on B-BBEE Codes. Self-regulation using an affidavit was problematic because it was prone to fraud and fronting. He asked if there were measures to curb this as it could undermine empowerment efforts. He commended NEF for its efforts in pushing for the establishment of a black bank. He asked how the notion of a black owned bank and state-owned bank could be married.

Ms J Fubbs (ANC) said the B-BBEE Commission and NEF funding models worked against the principle of radical transformation and in ensuring that senior management levels were in the hands of black people. Legislation itself would not be enough. There was need for buy-in by everyone, government entities as well as the private sector.

Mr Carrim said that SARB was not doing enough when issuing licences to check on the transformation goals.

Mr Naidoo in his response to Mr Maynier said he was not going to comment publicly on any of the investigations about accounts held by banks, as it was improper. On the time it takes banks to close accounts, it was not the intent of the law to close accounts. Closing accounts was a last resort; it is not standard practice to close accounts before evaluating risks. On SARB’s capacity to implement the Financial Intelligence Centre Amendment Act, the Reserve Bank has a highly effective team that was doing a good job, amidst capacity constraints.

Mr Maynier interjected on a point of order to Mr Naidoo’s response that it was improper to comment on investigations in public. He wondered what authority he had in law not to respond to a question by a Member of a Portfolio Committee.

The Chairperson agreed with Mr Maynier and said it struck him as well, and he would seek advice from Parliamentary Legal Services.

Mr Naidoo replied that Section 33 of the SARB Act did not allow him to divulge any information on specific individuals in public, for confidentiality reasons.

In response to Mr Hill-Lewis, Mr Naidoo said it was not true that SARB refused to support any investigations. The Reserve Bank made it clear that it was not within its mandate to undertake such investigation. SARB was against a blanket debt write-off as it felt that it would undermine the stability of the financial sector.

Responding to Mr Shivambu, he pointed out that the Reserve Bank had private shareholders but they had no real power to influence policy and there was no real capital appreciation. In the current structure, ownership may be in private hands but control was in public hands. Barclays’ sale of its ABSA stake would significantly reduce foreign ownership although he was not sure to what level.

Ms Ntuli replied that the role of the B-BBEE Commission was to implement the mandate as provided by legislation. Issues around codes and empowerment levels were not the Commission’s decision, they were Parliament’s and the Commission was following due process.

On engagements with the private sector, the Commission was engaging with the private sector on different levels. They were expecting to see fewer fronting transactions going forward.

On investigations into the Cash Paymaster Services’ contract with the South African Social Services Agency (SASSA), they requested documentation from SASSA and were going to determine whether an investigation would be warranted.

On Mr Mabe’s concern about affidavits, Ms Ntuli said self-regulation and the use of affidavits was a policy, not the Commission’s decision. It was meant to exempt small companies from regulation costs. Self-regulation was a good initiative and there were stopgap measures to ensure that it was efficient. It did not take away responsibility by government departments to exercise due diligence in ensuring that companies were not misrepresenting facts.

Ms Mthethwa replied on why the NEF has not engaged the private sector on the establishment of a state-owned bank, saying she did not believe that it was the responsibility of the NEF. She believed it was the Standing Committee on Finance’s responsibility to engage stakeholders on that target.

On the impact of the Black Industrialists program, Ms Mthethwa replied that the program only came about two years ago but NEF has created over R25 billion worth of value for black industrialists so far. NEF has however not measured the impact of the program on the economy as a whole so far.

Replying to Mr Shivambu, Ms Mthethwa said the NEF Act was passed in 1998 but NEF was only capitalised in 2005 to the tune of R2.4 billion and it has not received any additional funding from government. NEF receives a thousand applications from black entrepreneurs per annum and would do more with additional resources from government.

National Association for Cooperative Financial Institutions of South Africa (NACFISA) submission
Mr Mzwakhe Sikhosana, Managing Director: NACFISA, emphasised the need for transformation in the financial sector. The majority of the member Cooperative Financial Institutions (CFIs) were from very poor working class backgrounds and drawn from townships and rural villages. CFIs and cooperative banks represent the hopes and aspirations of their members, some of whom their only income is from the social grant. Their hope for a better tomorrow and improved economic conditions depends on the system of collective saving or saving together. However the regulations were too restrictive to allow for rapid growth in the sector and to bring about tangible transformation that makes the cooperative sector attractive to those who are yet to join.

NACFISA felt that current legislation (Cooperative Bank Act 40 of 2007) was not supportive enough to the development of cooperatives in the financial sector. The different classification of cooperative financial institutions and cooperative banks by the Cooperative Banks Development Agency (CBDA) rules gives the impression that cooperative financial institutions were inferior. Thus members are more attracted to cooperative banks than cooperative finance institutions. Also, the singular regulatory body, CBDA, has no independent appeal process and therefore renders the regulatory mechanism unfair.

Mr Sikhosana, in conclusion, recommended that:
• To build awareness and confidence in the sector, government has to assist to drive campaigns on the importance of saving in cooperative banks.
• The CBDA rule that differentiates cooperative financial institutions must be done away with and replaced by different levels of cooperative banking.
• An independent appeals authority must be established to ensure a fair and credible process.
• The cooperative sector should be part of a team with the CBDA in formulating rules together so that the rules are fairly consultative.
• CBDA establish offices in provinces to improve access and service provision for cooperative banks.
• The banking platform is extended to all cooperative banks with no cost, to improve reporting and efficiency.

German Cooperative and Raiffeisen Confederation (DGRV) submission
Mr Ludwig Erhad, Director: DGRV, said that promoting cooperatives was important in transformation. He briefly shared the German experience on cooperative banking and highlighted what Cooperative Financial Institutions could achieve within the South African economy. He emphasised that having CFIs did not mean dismantling big banks within the financial sector. CFIs enable broadbased participation in the economy, a sense of ownership as people possess their own bank. They promote the development process, promote employment creation through SMMEs, decentralise the financial system and improve the GINI-coefficient.

South Africa National Apex Cooperative (SANACO) submission
Ms Ann Ngutshane, National Apex Cooperatives of South Africa president, said the organisation looked at transformation from the perspective of self-help and capacitation of communities. She emphasised the need for radical transformation and redressing the apartheid legacy that cannot be swept under the carpet. She noted that the private sector was not willing to transform on its own. There was need for the creation of a sustainable inclusive cooperative ecosystem to serve the impoverished majority.

She pointed out that CFIs, in the current model, were “glorified stokvels” and had to be transformed into fully fledged banks. She recommended the setting up of a national cooperative bank that will serve as the reserve bank of cooperatives in South Africa. Its functions would include the disbursement of development funding loans, co-operative business restructuring finance, bailout and mergers finance, co-operatives and SMEs bridging finance among other related functions. There was a need to review legislation and regulations to give APEX more powers and responsibilities within the financial services sector. It was time to take cooperative banking seriously as it was a workable model in other countries. More political will was needed.

Nedbank submission
Mr Mike Brown, Nedbank Group CEO, remarked that transformation was more than compliance with any codes, it was a moral and business imperative. Transformation needs to be a catalyst for the higher levels of inclusive growth South Africa needs. Nedbank was committed to play its part, working together with business, government, labour and civil society to address structural socioeconomic challenges in the country and improve the lives of all South Africans.

He highlighted progress made by the bank from 2006 to 2016 as a result of an integrated strategy to transform and grow, notable being the increase in market capitalisation from R60.1 billion in 2006 to R118 billion in 2016, and number of employees increasing from 24 043 (58% black) to 32 401 (78% black) in the same period. The Nedbank Group board was diverse in demographics, skills and experience and consisted of 56% independent non-executive directors of whom 60% were black and 19% executive directors of whom 67% were black.

Between 2006 and 2016, Nedbank unlocked R8.2 billion in value for its more than 500 000 B-BBEE shareholders. Nedbank had a total measured black shareholding of 37.55% and black women shareholding of 17.39%, based on its 2016 FS Charter verified score. Training spend for black staff increased from R80 million in 2006 to R320 million in 2016, and the representation of people with disabilities increased from 0.21% in 2006 to 3.01% in 2016, exceeding industry targets.

Mr Brown highlighted Nedbank’s transformation journey through value creation for B-BBEE shareholders and communities. In collaboration with government and various stakeholders, Nedbank continues to commit significant resources to education development.

He emphasised that Nedbank prioritises its role in creating real economic opportunities for black businesses in South Africa, partnering with them to ensure their success as viable, productive participants in the country’s socio-economic development.

Discussion
Mr Maynier said ABSA and Standard Bank received invitations from the African National Congress as part of investigations in the closure of Gupta bank accounts; despite the fact that the ANC was not an official investigative body or regulator of the banking sector. He asked if Nedbank received the same invitation from the ANC and whether it cooperated with the ANC investigation.

Mr Topham asked about prudential requirements as affecting CFIs and how the scope could be widened to ensure growth of CFIs. He commended Nedbank for being a clear leader of transformation within the financial services sector. He asked about the effect of change in the dividend tax for BEE deals, whether it would be detrimental to all sectors of the economy.
 
Mr A Lees (DA) remarked that it was absolutely clear that Nedbank was the leader in terms of black representation in top management. He asked why other banks were not following suit. He asked how long the country should wait for a black Nedbank CEO.

Mr Buthelezi asked for Nedbank’s views on the ‘once empowered, always empowered’ concept. He asked for Nedbank’s experience in dealing with illicit financial flows.

Mr Shivambu directed his comments to Nedbank, noting that in terms of management representation there was a certain degree of change, but ownership outside of institutional investors was just around 5%. Transformation spoke to deracialisation of ownership and high levels of monopoly in the financial sector. He asked what direction should be taken in this regard. He asked Nedbank’s view on the dichotomy between bank concentration and stability as spelt out by the Reserve Bank, whether concentration was to be maintained for stability sake or if the field should be opened up to other players.

Ms Fubbs asked the cooperative banking representatives how much funding was provided by the public sector in Germany as a percentage of the bank’s capital and how much were they envisaging in the South African case. She asked if Nedbank had measures to attract life savings from an early age right through, rather than credit.

Mr Sikhosana, NACFISA, replied that a deposit insurance fund to the tune of R1 million was sitting with CBDA. CBDA set up a committee not inclusive of the cooperative sector, and that committee was not functional. There was no deposit insurance fund currently.

Mr Sikhosana replied to Mr Topham that prudential requirements were in place but were not developmental in nature. There were limitations that frustrate the development of cooperative institutions, and CFIs were not treated the same as general banks. Also, regulatory bottlenecks meant that they were only two operational cooperative banks, and they are still not covered in the National Payment System.

On how much was needed to establish a cooperative bank in Germany, Mr Erhad of DGRV said there was need for proper buy-in from society. Both government and private sector had to mobilise savings and pool in resources and expertise to ensure the success of the model. Society as a whole was better off with an inclusive banking system.

Mr Brown, NEDBANK, replied that Nedbank did meet with the ANC but what was discussed had nothing to do with individual accounts but pertained to general regulations. On the ‘once empowered, always empowered’ concept, it was a valid proposition in an entity with regulated capital.

On Nedbank’s experience in dealing with illicit financial flows, Mr Brown replied that the bank had a large risk management framework in place. Around R1 billion was invested over the last three years towards curbing financial crime, and the financial crime units were headed by very competent people.

In response to Mr Shivambu, Mr Brown said there was need to transform institutional ownership. Nedbank believed that competition was good for South Africa and supported the call for the entrance of more players into the market. He suggested that the Committee look into the progression of a deposit insurance as the challenge small banks had was in raising deposits. People prefer bigger strong banks as opposed to smaller banks that may not be able to pay deposits back as in the case of failed African Bank. Deposit insurance would be good for competition but the challenge will be who funds this.

Mr Carrim commented that illicit financial flows was a big concern for the Committee and all the institutions had to do way more to curb these flows.

South African Insurance Association (SAIA) submission
Ms Leila Moonda, SAIA General Manager: Governance and Transformation, submitted that SAIA and its members were committed to growing an inclusive economy. They were committed to broad-based socio-economic transformation for the benefit of all South Africans and to the vision of the National Development Plan. In recognition of low black representation in top management within SAIA, it was committed to doing more on this front. Black economic interest in the industry was 18.97%, with the largest short-term insurer in the country being 28.33% owned. Black representation at board level was 28.57% compared with a target of 50%. Black executive directors represented 36.36% of the total, black top managers 25% against a target of 60%, middle management 42.36% against a target of 75%; and black junior management 70.14% against a target of 80%.

On enterprise and supplier development, in the last three years members had spent an excess of R373 million developing 1 829 black suppliers, and in the process employing 29 771 people.

SAIA was working towards implementing the SAIA Enterprise and Supplier Development programme, launching a College of Insurance, regular monitoring of insurer procurement spend, including monitoring spend on suppliers that were 75% black owned or more, and investigating ways to support the establishment of black insurers.

Black Insurance Owners Association (BIOA) submission
Mr Khandani Msibi identified NestLife, Bophelo Life, Workers Life and Widows Life as 100% black owned insurance companies that came together and formed the Black Insurance Owners Association.

He said the South African financial services sector is regarded by the rest of the world as very developed however, it remains the least transformed. If no transformation takes place in this sector, then transformation across all other sectors will be inhibited as the financial sector is the sector that will finance transformation. Parliament will have to heavily regulate the financial sector. The Johannesburg Stock Exchange (JSE) is dominated by foreign companies on a much grander scale than before independence was achieved in 1994. Less than 4% of the total assets that make up the financial services sector are managed by black companies. The transformation reports that are given do not contain input from the beneficiaries of the transformation agenda who invariably control less than 1% of the market share. The organisation members of BIOA are worth about R4b in total. They are not small players, but consider themselves big players in their own right. These organisations are not looking to be anyone’s partner neither are they are not looking to be empowered. He argued that there was deliberate exclusion in the past and that situation should be reversed to facilitate deliberate inclusion which will allow black owned entities to grow. He asked that legislation be crafted to allow more black players to penetrate the market. He accused the Reserve Bank of deliberately facilitating the exclusion of new players in the financial sector. He noted that after 22 years of independence, there is no black owned bank. In addition, nothing is known about how banking licences are awarded. The Reserve Bank is not accessible to the ordinary citizen.

One of the reasons the South African banking sector remains uncompetitive is that the fees structure has largely remained the same except for minor changes made as a result of the entry of Capitec Bank as a new player in the industry. Medical aid remains untransformed and that status quo is preserved by the manner in which brokers are appointed. He observed that such appointments are conducted by the insurance companies. The Sector Charters are failing to enforce transformation because compliance is not mandatory but voluntary which is akin to government simply requesting industry players not to appoint their own family members but to prefer black children. Government should not emphasize that 30% of procurement is reserved for black firms but should note that 70% of procurement remains reserved for white firms. Facing reality in this manner will serve to demonstrate the ridiculousness of the policy. He concluded by stating that there is an immediate need for black people to take control of the economy and not remain dependants.

Black Management Forum (BMF) submission
Mr Langalethu Manqele a board member of the Black Management Forum (BMF), stated that the existence of the financial services charter is unnecessary because it is minimalist. He noted that the charter introduces meaningless language. And cited, as an example, the concept of “equity equivalent” contained therein. He noted that there is nothing equivalent to owning because either you own or you do not. He noted that the charters, in general, should be repealed. He added that the concept of empowerment financing should be eradicated and explained this position by emphasizing that financial services companies are in the business of extending finance and as such, awarding points to companies to do what they have been established to do is ridiculous. He noted that the sector has shifted its attention from ownership and is focused on financing. He requested that the committee should scrape empowerment financing altogether. With regards to market concentration and collusion, he advised that the state ought to enter the market as a player and take up the risk the private sector is not willing assume. He noted that small regional banks such as VBS and Ubank ought to be supported and assisted to help them compete with industry’s big players. He was pleased that the Competition Act had been amended. However, the Competition Tribunal should not just fine companies and use turnover as a basis for determining the fine but should arrest the executive directors that are found to have participated in collusion.

He noted that little has been done to develop skills in the sector. Black people can be found in support functions but none will be found running profit centres, which he described as window dressing.

Access to finance is very important and there is evidence that financial institutions engage in racist practices when it comes to product development and pricing and called on the Committee to investigate this. Product distribution remains a problem as people in the rural areas remain without access to banking products. The FS Sector has a very powerful influence over society as it largely determines the distribution of resources, the pace at which infrastructure is developed and ultimately the manner in which people’s lives change. He called for the establishment of a commission of enquiry to investigate racial discrimination in pricing products, services and distribution.

BMF Deputy President Dumisani Mpafa weighed in and stated that the financial sector has been using the old sector codes. This explains why banks such as ABSA and Nedbank are at Level Two of BBB-EE. The new Code published in 2013 has been ignored. The Department of Trade and Industry (DTI) should repeal the old codes. Black people owning 5% or 10% of corporations is not transformation and transformation is the creation of black owned institutions. Government should have protected African Bank which is a black owned bank from collapse and provided support to it.

Discussion
Mr D Maynier (DA) asked if BMF can provide evidence of racial profiling in the financial services. He acknowledged that such racial profiling is a serious problem that needed to be addressed.

Mr Manqele replied by requesting that that the Committee investigate the issue because they do not have evidence. They are aware that the practice exists though.

Mr F Shivambu (EFF) noted that the South African Insurance Association stated that there is 18% ownership by black people in the industry and yet the Black Insurance Owners Association says ownership amounts to less than 1%. He called on the Parliamentary Budget Office to compile consistent data on that. The stakeholders are giving out data that satisfies their own interests. He asked that the figures be reconciled to assist in the decision making process of the Committees.

He asked BIOA to make recommendations on what should be done. Parliament legislates and enforces compliance and asked if BIOA would want to see the current legislation amended or mere enforcement of the legislation. Parliament is an autonomous body and does not act in the capacity of the executive. He recommended that the BMF and BIOA come together and make united recommendations on what should be done.

Mr N Koornof (ANC) asked why individual insurance companies did not come to make submissions. He asked why the brokers were absent as well.

Mr Mpafa confirmed that indeed the statistics need to be verified. He cited the example of it being stated in Parliament that R200 billion had been spent on procuring goods and services from black suppliers and yet only R60 billion had been spent on procurement in total. He replied that their interest is in the implementation of the legislation and having companies aligning to the Code.

Ms J Fubbs (ANC), Chairperson of Portfolio Committee on Trade and Industry, asked what BMF considers to be ownership, 100% or 51%?

Mr Mpafa replied that 51% is deemed ownership but the sector codes go lower than that and suggest 25% as ownership. BMF is interested in “organically grown” institutions with no less than 51% black ownership.

Ms Fubbs said that she knows that Botswana considers fair ownership to be 51% and Botswana does not have a BBB-EE Act and they achieved that within three years.

Mr Msibi, BIOA, said that their previous visit to Parliament was a result of a threat that was made. The threat being that their businesses would be classified as micro insurance companies which would in effect take them out of the market. They were there to defend themselves. They requested that the Financial Sector Regulation Bill which had already gone through Parliament be brought back to the National Assembly so that their input can be considered. He spoke about the management of retirement funds by employers as opposed to employees. Another request was that the Medical Schemes Act should be amended to add a provision to the effect that brokers are not appointed by employers.

It was disappointing that various government institutions were asking black business owners to come and ask for solutions to enable them to be competitive business owners. He expected that Parliament would take up the rights of black people and enforce them. The entire financial sector should be turned upside down just as what happened during the negotiations to end apartheid in South Africa (the CODESA negotiations). Parliament can pass a law to make that happen.

Mr Y Carrim (ANC), Chairperson of Standing Committee on Finance, said that over 300 hours of consultations were spent on the Financial Sector Regulation Bill. The Bill had been sent out to all who made submissions. The EFF and the ANC are fully committed to transformation. A bad precedent will be set if the Committee requests a Bill to be brought back to the Committee simply because some people made a request to have that happen. The ANC will not be agreeable to that method of operation. The Rules of Parliament do not allow for a Bill to be brought back to the Committee because some citizens did not give their input. The Bill was before the National Council of Provinces (NCOP) which will be having consultative meetings in Gauteng sometime next week. BIOA was encouraged to attend that meeting. Parliament wants to influence the conduct of players in the sector. The Bill is about empowering every black organisation and not any specific organisation or individual. He did not believe the statistics presented to Parliament by the South African Insurance Association (SAIA) to the effect that 18% ownership of the assets in the sector are held by black individuals. The insurance sector is essentially white and influenced by the minority.

Ms Fubbs said that Insurance as a subsector of the financial sector is the most untransformed. This was ridiculous because the majority of their clients are black
 
Ms Moonda, SAIA, replied that the she thinks that the 18% refers to the ownership of financial institutions and the 1% refers to the market share. She does not have the figures indicative of the number of black policy holders but she will give them to Parliament in the written submissions she will make.

Ms Viviene Pearson, SAIA CEO, said the fact that SAIA members were not in attendance was not a reflection of their unwillingness to participate in the proceedings. A meeting was held at board level and all members gave their full support. The members are willing to come to Parliament. The short term insurance sector is fragmented and getting all the operators to participate is difficult. She acknowledged that it is important to regulate the appointment of brokers because they play an important role in the industry. There is communication with the Financial Intelligence Centre to secure transformation.

Mr Carrim said that National Treasury will respond to the comments made at the public hearings on the Insurance Bill which is before Parliament. The Bill will not be withdrawn and all organisations are welcome to participate in all meetings leading to the adoption of that Bill. He welcomed the associations to the ANC Policy Conference which will be held soon to get their ideas across as well.

Mr Shivambu said that the black associations should meet with political parties to get their ideas across to the parties. He emphasized that the black associations need to engage all stakeholders from the banks to the parties to get cooperation. Coming to Parliament alone may not be as effective as one would expect.

OSIBA Holdings submission
Mr Septi Bakula, OSIBA Holdings director, said he has worked in the field of entrepreneurship and small business development for over 20 years. He believes that transformation is a crucial issue and the financial sector should actively participate in it. Development of this field is crucial because it addresses economic inclusion and job creation. Access to finance is a critical solution to several problems but is not a solution to all of them. Access to markets is equally important as well. Commercial banks argue that many entrepreneurs do not have sufficient security or collateral to mitigate the risk of lending to them. He identified two instruments that help in mitigating this risk: business advisory services play a key role in helping start-ups and credit guarantees which are given by the state and enable entrepreneurs to get funding. Small business are the commercial banks’ clients in any event. In the 1990s the commercial banks established a scheme called the Sizanani scheme which provided business advisory services; however, the scheme was suddenly discontinued. As a result entrepreneurs lost an important support mechanism. Other advisory schemes exist in the country, but these are individually owned by business partners. Commercial banks should be asked to review their withdrawal of the business advisory scheme. Banks only want to advise clients that have outstanding loans against them. He pointed out that the Taiwan Small Business Advisory Centre was established by both public and commercial banks. When an application for a loan is turned down, the client is automatically referred to the institution which then assesses the applicant’s needs. Thereafter, a new application for a loan may be made by the applicant. When this is done, there is a 40% chance that the second application will be successful. This is a significant development considering that the pre advisory success rate stands at 20%.

In the past, when credit guarantees existed in South Africa, small businesses had a higher access to funding. If these two facilities are not within their interest, then government and banks should come up with alternative schemes that serve their interests.

Black panel beaters struggle to access business controlled by short term insurance businesses. A special dispensation was created in the past which crumbled for unknown reasons.

He called for commercial banks to participate in the credit guarantee scheme and the establishment of an open advisory scheme for entrepreneurs similar to Sizanani which existed in the past.

Discussion
Ms Pearson, SAIA, responded to the recommendation about short term insurance, saying they had a meeting with the DTI and formed a Multi Transformation and Assistance Ability Forum with panel beaters and discussed barriers to entry such as standards for repair work. The establishment of an enterprise development project was discussed which would pay for the audit fees of the black owned panel beater businesses and it would be funded by SAIA members. She emphasized that SAIA is committed to this cause because they understand the power they have in developing black owned business.

Mr Carrim recommended that all parties meet on a regular basis to collaborate and come up with solutions.

Ms Mooda said there is dialogue going on between panel beater associations and the short term insurance sector.

Mr Bukula interjected and said the dialogue referred to has been going on since 2006. He objected to this dialogue going on indefinitely. He asked for firm commitments and firm timelines to get resolution.

Mr Ariji submission
Mr F Ariji, a former investment banker who formed a joint venture with Rand Merchant Bank (RMB) in two Plettenberg Bay projects, asked that the Committee recognize individuals that have lost their properties because of an inability to secure their interests against the interests of a bank as a result of a lack of funds or know how. A criminal charge will be laid against RMB which will be based on section 163 of the Companies Act which prohibits companies from acting oppressively and unfairly towards other shareholders. He claimed that RMB was not transparent, acted in bad faith and unfairly withheld crucial information and was motivated by financial greed. He outlined the case against RMB as contained in the submission submitted to Parliament. RMB did not formally appoint directors to the project but simply seconded its employees to the project. The bank managed to avoid tying its assets to the project unlawfully.

Mr Adams submission
Mr A Adams stated he wants to stop the exploitation of the working class by financial institutions. The insurance companies only have one goal, a goal they have had since before independence, and that is to sell products that impoverish the working class. The products sold by the insurance companies are not designed to benefit the living but the dead. The products have added trillions of rand to the insurance companies and left citizens with nothing to show for their contribution. If a client defaults on premium payments, the client loses all cover and past paid premiums are not refunded. Parliament must banish impoverishing products and replace them with products that create wealth in a person’s lifetime. The working class should be educated to avoid these impoverishing products. Grade R to Grade 12 should focus on educating people to be financially independent and insurance companies should get rid of their products before the next general elections. All individuals who have lost coverage due to non payment of premiums should have up to 80% of the premiums refunded. Such refunds should be dated back to 1914. The forfeiture of premiums as a result of non payment brought about because of affordability, retrenchment, dismissals and retirement should be stopped.

Exorbitant banking fees should be stopped. He identified Capitec Bank as an example of a bank that has the people’s interests at heart. In 2013 one of the largest insurance companies obtained an urgent gag order against him and so he will not be able to identify individual companies by name. An estimated $50 billion is exported from the African continent every year illegally and Parliament needs to attend to this. That amount needs to be invested back in the continent because the losses undermine the development of the African continent. He called for an investigation into the financial services and mining industry sectors for such leakages. He added that poor immigration policies have encouraged illegal immigrants to enter the country and has resulted in the proliferation of drug lords.

South African Auto-Repairs and Salvage Association submission
Mr Len Smith, SAARSA chairperson, said the short term insurance companies have a restrictive and racist procurement practice. There was a forum with the Competition Commission in Pretoria which discussed the same issues that were addressed today. The banks have their own insurance companies that are racially biased as well. The Retail Motor Industry was the only motor industry association until 2004. This was known as the old white boys club. Ironically the industry had a fair practice of procurement during the apartheid era and since 2002 this changed. He assumes the Sector Charter brought this negative change. A panel system was started in 2002 which is essentially a preferred service provider system. At present, 95% of repairers on insurance panels are white and as such the black spectrum has been completely annihilated. He noted that a few black panel beaters were added to the list. He stressed that the sector cannot self regulate.

This prompted the creation of the South African Auto-Repairs and Salvage Association. The Competition Commission said it will leave the industry alone for six months and then thereafter perhaps it will take action. The process of negotiations with SAIA has existed for many years and nothing has been achieved. He mentioned a three day conference which was held in Caledon that focused on the oppressive approval system. Minister Rob Davis and Mr Jeffrey Ndumo were in attendance at that conference. The Minister was supposed to make an announcement on the third day but he was nowhere to be found. KPMG, in a report published about 5 years ago, said R58 billion was spent in auto repairs and panel beating raked in at least R28 billion. SAIA says blacks get about one billion rand and as a result they acknowledge that R27 billion rand goes to whites. The monopolies and the cartels are vast and cruel. Apparently one company owns 75% of the value chain in the motor industry. This company is owned by “three white boys” in Johannesburg. The same CEOs that make up the SAIA board have good connections with these “three white boys”. The procurement officers in the insurance industry are all ex Afrikaner police officers and they police the skewed procurement practices. The auditing firms in this industry are all white firms. There are about three or four firms that audit a R58 billion industry.

With regards to enterprise development for black people, a few million rand is given to white consultant firms who then go to small black business and provide those entities with business education. Those entities do not need business education but are in need of work. Black service providers must be sourced through the procurement procedure and black auditors must be used. He called for a procurement guarantee before there is business development education. He pointed out that people are shot and beaten by the white cartels in this industry. He called for government to legislate and enforce good laws that will regulate the industry because industry cannot self regulate.

Ms Oberholzer submission
Ms Yvonne Oberholzer said she has been a victim of bank abuse as a result of a loophole in the 1936 Insolvency Act which operates in pound sterling which has no place in South Africa. Section 8 of the Insolvency Act was used to sequestrate her. She was under debt review and yet she was sequestrated. She was arrested by an army of policemen who did not have a warrant. This happened after she had just been discharged from hospital. She refused to go with the police and the police took her partner and her tenant. A complaint against the magistrate was made with the Magistrates’ Commission and the magistrate disappeared from the court. ABSA scuttled an empowerment project that she had started on a farm in Ceres. She claims that she looked after her staff very well. The bank sent court papers to the wrong address but the courts did not recognise that defect. She called for a state owned bank to give the banks some competition. She alleged that there is a monopoly by the banks and stressed that competition needs to be established.

CASISA submission
Mr Justin Lewis of CASISA said he was asked by Lloyds of London to investigate an alleged insurance fraud case in South Africa. In 2000, a bank as a result of its own mismanagement liquidated some assets and used property development auctioneers and evaluators to undervalue the assets. He alleged that there was some phone hacking involved and there were contrived liquidations which is a method in which entities liquidate companies they owe a duty to. The result is that the liquidated company cannot sue and be sued. An investigation was launched by Mr McCarthy, the then head of the Scorpions, and it was discovered that there was a lot of lying in court chambers to judges. The investigation was corrupted by a high court judge who lied and later admitted to it. Mr Lewis further alleged that the courts were corrupted in a highly coordinated manner and that the banks essentially had control of the registrar and the Master’s Office. He identified one of the methods of corruption used as file management. Chief Justices Chaskalson and Langa were involved in conversations with him over these matters. The idea is to mislead the courts and to get members of the bar and side bar to accept mandates to facilitate fraud and mislead the court. CASISA is there to protect fundamental human rights and to protect the judiciary. In 2010 he together with Adv Simelane assisted with the closure of the Auction Alliance scandal with Wendy Appelbaum to stop garnishee orders which are particularly harsh against the poor and indigent. There is a lack of accountability in legal practice and this is one of the reasons the Legal Practice Act was implemented. He spoke about some lawyers walking around outside court with court stamps. He recommended that the liquidation law be reformed and corruption monitors be appointed in courts. He referred to the practice of having houses auctioned for as little as R100 as outrageous.

Ms Fubbs mentioned that the insolvency laws would be reviewed by the Justice Portfolio Committee.

Payment Solutions submission
Mr Collins Khumalo, Payment Solutions CEO, a deduction management services platform, said the rules and regulations on deductions have to be worked on. He called for access to responsible and affordable finance for the poor and mitigating credit risk for finance providers and the provision of a solution to all stakeholders. A big challenge is the high cost of credit which is largely caused by a lack of effective competition, high overhead costs, lack of alternative sources to bank funding, lack of transparency about collections and the management of collections in the financial sector.

The cheapest unsecured loan in the market costs approximately 47% of the amount lent. The inefficiency of the financial sector is characterised by collection fees, origination fees, contract fees and administration fees adding to the cost of lending. The life of the worker today has to be transformed and cheap lending costs have to be facilitated. At least 75% of employees are broke five days after pay day. This leads to the emergency of payday lenders who lend at a minimum of 5% interest per month and that amounts to anywhere between 60% and 120% per year.

If there is not an efficient and effective collection mechanism at source on payday, the new entrants to the market will fail. He identified the new entrants as black players. A centralised collection mechanism would be able to control that. Conflict of interest exists and this manifests itself when debit orders are imposed for the collection of debts. A central collection agency should be introduced to distribute amounts collected equitably amongst creditors. Over regulating will send the big lender out of the industry and leave the micro lenders to take over the market and this will drive up the cost of lending in the short to long term.

Parliament and the DTI can address some of these issues by forcing down the cost of lending. A potential problem is few people qualifying for loans due to this and he provided as a solution the deduction and collection mechanism which is rule based, cost effective and reliable and available to all players in financial services. A payroll payment mechanism has the effect of ensuring that people take home negative pay checks or no money at all and that is one of the reasons government started regulating in the early 2000s. Proper affordability tests should be done before lending is advanced.

Limpopo Secondary Financial Forum submission
The Forum consists of organisations from Bakenberg, Bembe Sekhukhune, Mathabatha and Manktsana which decided to come up with the cooperative to source funds. The mission of the organisation is to be the best cooperative in South Africa and to share challenges and wisdom with each other to sustain the sector in the province. Unemployment is South Africa is high and there is a need to provide finance to cooperatives to eradicate poverty and unemployment. Some of the challenges faced by cooperatives are to qualify to be a Cooperative Financial Institution (CFI), the organisation needs to be capitalized to the tune of R1 000 000. The cooperative was hoping to get funding from National Treasury to facilitate this registration. CFIs are the best organisations to serve communities because they have a clear understanding of the community’s needs and group work fights poverty. The organisation travelled all the way from Limpopo by taxi and it took them about 24 hours to get Parliament.

They said transformation has been on the national agenda since 1994 and it is time for Parliament to legislate to enforce it. South Africa has fewer than 200 CFIs and no more than five cooperative banks. 57 CFIs made application to be registered as such in 2013 but only 24 met the requirements for registration. The requirements are cumbersome and prohibitive. Ernst and Young says in general cooperatives are yet to be recognised as modern economic drivers. South Africa should recognise them in order to create employment and fight poverty. The Limpopo cooperative has met the minimum requirements and has been certified. The biggest problem for them relates to sustainability.

Poor management of funds, lack of knowledge to create income centres, high loan delinquencies and no products to sustain the CFI are the major reasons for CFI collapse.

The Forum chairperson, Mr Theophilus Ramshika, said a lot of cooperatives are not operating because of a lack of electricity. The Departments responsible for social and economic development are not giving assistance or direction to sustain the cooperatives.

Ms Rose Malawi of the Forum stated that the challenges include registration with the Cooperative Bank Development Agency (CBDA). The requirements are too cumbersome. Some of the requirements are membership of at least 200 people with R100 000 in share capital, a fully furnished office, with a staff complement and stationery. The requirement to have a staff complement implies that salaries will have to be paid. The DTI has not been able to assist because they send them to the CBDA. Cooperatives have to register with the National Credit Regulator. They are just small players who cannot meet all the requirements and that these are barriers to entry. She highlighted the serious lack of funding that will eventually lead to their collapse. The regulator ought to fund these organisations. She mentioned that the issues that have been raised do not only affect the cooperatives in Limpopo but affect all the other provinces as well.

Discussion
Ms T Tobias (ANC) stated that she will make sure that the issues raised will go to the right department. She asked for the minimum finance requirements the cooperatives think should be implemented and assured them that the cooperatives will find assistance. She identified the issues raised by Mr Cumani as critical. She did note that commercial banks are there to make a profit. She asked who should own and control the database and how it will be related to the financial sector. Government will not allow deductions that will amount to zero earnings for an employee. She lamented that if the banks are manipulating the courts as Mr Lewis said then that is a very serious issue that needs to be dealt with. She wondered how banks get indemnity in term of disclosing information to courts and called for a thorough investigation of these issues. She wondered whether the suggested corruption monitors need to be trained in forensic investigation.

Mr Shivambu said in addition to transformation, issues such as insolvency and repossession should be included in the report because if someone has been paying for a house for a long time and all of a sudden loses a job, the banks repossess the house and the customer does not get a refund for payments made. He asked SAIA to give Parliament an explanation on procurement from black panel beaters. The problem is exacerbated by the fact that short term insurance companies take payments from black motor vehicle drivers and yet when the motor vehicles break down, they exclusively give work to white firms. That is clearly wrong. He asked for enquiries to be made into the funeral insurance subsector because he considers it to be a huge subsector and yet nothing had been said about it in the hearing.
 
Mr P Mabe (ANC) said that transformation in the financial sector needs to be expedited. He realises that there is a lot that needs to be done. The up and coming panel beaters are not used to do big scale jobs and he wondered whether these panel beaters are included in government’s procurement priorities. Pricing needs to be regulated in the insurance sector. He called for coordinated incubation of the sector and set asides in procurement. He has not seen any success stories in cooperatives even though a cooperative is just another way of doing business and should be treated the same. Policy that does not create success stories is bad policy.

Ms Tobias asked CASISA for recommendations on how liquidation legislation should be structured. CASISA should give Parliament more information of the corruption of the courts so that it can be referred to the Portfolio Committee on Justice for further investigation.

Mr Carrim applauded Mr Adams for being frank and honest about his views on the financial sector. He said he would try and reach out to Parliament to source a refund for the Limpopo group for their transport costs. The relevant department will be approached as well. He was however quick to add that there is no guarantee that funding for the cooperative will be secured.

He recommended that the individuals that came to Parliament should not just stop at speaking at Parliament hearings but should lobby political parties, stage demonstrations and march on the banks, Parliament, and the Executive. In the case of Yvonne Oberholzer, Parliament should not deny ABSA its right to reply. There is a need to be fair and deal with monopolies across all sector. DSTV has a monopoly and that one should be dealt with as well. Parliament should not deal with the issues selectively. He advised against the creation of unreasonable expectations because reform will take time and six months is a reasonable time to wait. Results may not be achieved before then. The repossession of houses is a shocking and disgusting issue. Some research will have to be done on the workings of that practice. He realised that work will have to be done to ensure that cooperatives get the necessary assistance. He is however aware there have been cases where cooperatives have ripped off members and Parliament should not fall into the trap of either romanticising or demonizing cooperatives.

Ms Fubbs reiterated that there is work being done with the Portfolio Committee on Justice to repeal some of the outdated legislation that still stands.

Mr Khumalo, Payment Solutions, replied about the central database, saying that SARB, the Credit Regulator, DTI and several other bodies have been engaged to move this agenda forward. The Reserve Bank may come up with a policy to make it happen. He suggested that ownership of the database be a public private partnership but should be run by an independent organisation that is not involved in collection. At present there is a total of 4 500 registered financial service providers and the database will eliminate the cost and risk associated with collections whilst simultaneously lowering the cost of financing.

Mr Smith, SAARSA, replied that government has encouraged the panel beaters to form a cooperative but all the government bodies have been disappointing in their response. He believes that only the Competition Commission may be able to do something about their plight. The black organisations feel hopeless; they need more assistance to get things done.

Ms Fubbs said that the legislation seems to be unenforceable and asked what Parliament needs to do to get the bodies to comply with the law. The manner in which business conducts itself has to change. She identified this as the Berlin Wall for South Africa and that wall will fall. She declared the insurance subsector as the most unreformed and called for it to reform itself.

Mr Adams stated that a court order was obtained against him and he wondered whether the contribution he gave was privileged.

Mr Carrim said the Committee will consult with Parliament’s legal representative, Adv Frank Jenkins, and let him know what the way forward is.

Ms Oberholzer said that ABSA sequestrated her because she went under debt review. The court in her matter held that going under debt review was an act of insolvency and ordered her sequestration.

Mr Carrim asked for recommendations to which Mr Shivambu stated that it has been a long day and suggested that the meeting be adjourned.

The meeting was thus adjourned.

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