In a virtual meeting, the Committee was briefed by the Co-operative Banks Development Agency (CBDA) on the Covid-19 loan guarantee scheme; the role of the Co-operative Banks Development Agency in assisting co-operative financial institutions and co-operative banks, and by COSATU on the R200 Billion loan guarantee scheme. Members heard that the CBDA sought to provide support to 23 co-operative financial institutions and four co-operative banks. It had one registered representative body and no support organisations as yet. The 30 000 membership comprises individuals and groups. The CBDA loans are in the range of R260 million total capital at the end of the 2019/20 financial year was at R33 million.
The Committee expressed concern about the way the banks were doing their business. Of equal concern was the situation now where the Committee had to speak to COSATU first before it could speak to the bank’s council. Members felt that there was a need to have the banks come and explain as ‘there was a lot of money available but the banks were not giving it out’. Members asked the Cooperative Banks Development Agency to unpack and give feedback on the decline in the demands for loans during the lockdown period; the form and approach of using cooperatives as economic opportunity vehicles; why were they only being used in the agriculture sector and not being spread out to other sectors and if they were involved in awareness campaigns to change the perception about cooperatives.
The Committee insisted that banks should support people with ideas on production who were without surety, so as to be able to give the Committee a breakdown in terms of those who could be assisted by gender, race, and township and age-wise. Members expressed the desire for the National Treasury to make a presentation as they were the ones who made the funds available, and that the lending criteria by the banks should be transformed so that it benefited all.
The Committee was briefed by COSATU on the R200 billion loan guarantee scheme. Members heard that the Union supported any measure that will save jobs, create jobs, and help businesses to remain open; avoid retrenchments, and aid badly affected sectors of the economy. Members asked COSATU how it worked out the total of these million job losses which it anticipated; what the total salary bill for these million employees was per annum and how much of their salary would a million employees lose from a small business if they do not change the situation as it was.
Members were pleased that all were speaking with one voice that the banks needed to be invited as soon as possible to the Committee. Members supported COSATU and said that cooperatives should not focus on agriculture only but on all sectors. There was too much red tape with banks hence the Committee needs to bring the banks to account.
Of concern to the Members was the absence of the Banking Association of South Africa at the meeting.
Briefing on the Role of the Co-operative Banks Development Agency (CBDA) in assisting co-operative financial institutions and co-operative banks
Mr David De Jong, Acting Managing Director of the Co-operative Banks Development Agency (CBDA), started by stating the functions of the CBDA. He said that the CBDA is mandated to do the following:
provide financial support to co-operative banks and manage the Fund following Section 26 of the Act;
assist co-operative banks with liquidity management;
facilitate, promote and fund education, training, and awareness in connection with and research into any matter affecting the effective, efficient and sustainable functioning of co-operative banks;
consult with the South African Qualifications Authority established by the South African Qualifications Authority Act, 1995 (Act No. 58 of 1995), or anybody established by it; and
Liaise with the relevant National Standards Body established in terms of Chapter 3 of the regulations under the South African Qualifications Authority Act, 1995, in respect of co-operative banks and support organisations
The CBDA seeks to provide support to 23 co-operative financial institutions and four co-operative banks. The CBDA has one registered representative body and no support organisations as yet. The 30 000 membership comprises individuals and groups. The CBDA loans are in the range of R260 million and deposits at above R340 million and total capital at the end of 2019/20 financial year was at R33 million. The CBDA offers three services which are pre-registration support and training which involves:
Providing guidance and support for registration;
Ensure awareness of the cooperative banking model; and
Presenting the legislative environment and registration requirements
Organisational and technical assistance which involves:
- Orientate board/management/staff and outline roles and responsibilities;
- Monitor operations for adherence to policies and financial performance;
- Provide governance, operations, and compliance training;
- Ensure compliance with registration requirements;
- Monitor financial performance;
- Provide business support, banking operations tools and on-the-job training;
- Review operations, see that product policies are aligned with strategic objectives; and
- Strengthen internal controls for compliance and adherence to statutory requirements
Mr De Jongh reiterated that some of these services were still being offered during the lockdown period virtually.
COSATU: R200 Billion Loan Guarantee Scheme
Mr Matthew Parks, COSATU Parliamentary spokesperson, said COSATU welcomed and supported government's R200 billion loan guarantee scheme. This support has been based upon it being a central part of the R500 billion economic relief measures announced by government at the beginning of May 2020. He noted that this country’s economy was on its knees and the nation has been in an economic recession before the lockdown with an unemployment rate of 40% and rising. The country is in danger of heading into an economic depression with unemployment pushing past 50%. The Federation supports any measure that will save jobs, create jobs, and help businesses to remain open and avoid retrenchments, and aid badly affected sectors of the economy. However, COSATU is deeply worried about the tepid pace at which the R200 billion is being dispersed into the economy. Only R13 billion has been approved three months after the announcement of the scheme is a massive crisis. If it is not addressed by the National Treasury and the banks, it threatens to condemn the economy into a job’s bloodbath and full-blown economic depression.
Mr Parks said that every bit of economic, financial, and social relief that can be pumped into the economy is supported by COSATU. It is critical to inject as much as possible into the economy and to provide the maximum amount of relief to workers, consumers, businesses, and economic sectors. The failure to do so is to condemn the economy into depression and workers into unemployment and their families into poverty. The loan scheme’s importance is one of the few lifelines for the economy and the survival of millions of workers in the absence of a stimulus plan.
The loan guarantee scheme was announced by the President at the beginning of May. Three months later, according to the Banking Association, it has managed to disperse only R13.26 billion as of 18 August out of a committed R200 billion. This is a mere increase from R12.88 billion on 25 June. In short, in just under two months, the banks have only managed to release a further R380 million. It will take years at this rate to reach the R200 billion commitment of the government. COSATU welcomed the relaxation of the lending criteria by Treasury and the banks at the end of July. However, there is no indication from the banks that this is sufficient or making a dent. Government unveiled an economic relief package of R500 billion, yet very little of that has come from the government itself, for example R50 billion is from the Unemployment Insurance Fund (workers' money to which government does not contribute), R40 billion worth of bank loan holidays, R70 billion from the IMF and the R200 billion loan guarantee scheme to which Treasury stands surety. The R150 billion amount that comes from government is merely a reprioritisation of existing budget allocations. So, in essence, government is not providing any actual new stimulus to the economy. Yet at the same time, Treasury is insisting that the banks write off the first R6 billion worth of any losses from the loan guarantee scheme. This nitpicking is causing the banks to burden applicants with excessively strict criteria to qualify for the loan. When government is contributing very little in the way of economic relief for the economy, it simply lacks the moral high ground to lecture the nation. It is also worrying that to date, Treasury has only signed for R100 billion sureties and not the R200 billion committed to publicly.
At this rate, the loan scheme will not reach R100 billion, let alone R200 billion. It is unlikely to even reach R50 billion. There are two options. Allow it to continue as is, except that it is a failure and may not reach 10% of the targeted allocation. It will also mean accepting that the economy will move from a deep recession into a depression and that unemployment will push past 50% and possibly 60%. It will then take at least a decade to recover. The other option is for decisive interventions. Treasury and the banks must honestly engage with what are the blockages to rolling out the loan scheme. Platitudes and pontifications will not remove what are clear inhibitors to ensuring the scheme happens. COSATU’s key proposed interventions include the following:
-Treasury stands surety for 100% (up from 94%) of the loan scheme to remove the major cause for banks to loosen lending criteria for applicants;
-Provide cash flows upfront;
-Reduce interest rates to make the loans more affordable and attractive to struggling businesses;
-Allow loan funds to be used for salaries;
-Allow loans to be used to restructure existing debt to make it more affordable;
-Convert portions of the loans to be converted into grants and equity to avoid overburdening emerging businesses with unsustainable debt levels and to incentivise saving and creating jobs;
-Utilise state development finance institutions and state banks to also disperse funding; and
-Require Treasury and the big five commercial banks to report fortnightly to Parliament on the rollout of the loan scheme
Mr H Kruger (DA) said that since the grant scheme was launched by government and commercial banks, they were very concerned as a Committee about the way the banks were doing their business. He noted that he asked four times in four different meetings to have the bank council come to the Committee to discuss this matter. Mr. Kruger said he is disappointed and surprised that they as a Committee now have to speak to COSATU first before they have spoken to the bank’s council. The problem is not with the workers, government or business, but it lies with the bank’s council. He emphasized that the Committee has to bring the bank's council to discuss the problem so that as a Committee they could get firsthand information on why the statistics are the way they are. It seems as if the banks are wasting time and do not care.
Mr F Jacobs (ANC) also weighed in on the matter and noted that there is a need to have the banks come and explain as there is a lot of money available but ‘the banks are not giving it out’. He reiterated that banks should support people with ideas on production who were without surety, so as to be able to give the Committee a breakdown in terms of those who could be assisted by gender, race, township, age-wise, etcetera. He said that the Committee needs to call the National Treasury to make a presentation as they are the ones who make the funds available. He emphasized that the lending criteria by the banks should be transformed so that it benefits all.
Mr T Langa (EFF) also supported the notion and urged the Committee to invite the bank’s association as soon as possible.
Mr Kruger asked COSATU how it worked out the total of these million job losses which it anticipated. He asked what the total salary bill for these million employees is per annum and how much salary will a million employees lose from a small business if they do not change the situation as it is.
Mr Parks responded by saying the job losses will have a ripple effect and affect some areas of the economy. He noted that with job losses it means workers are not able to buy electricity, food, clothes, service their bank loans, etcetera. Hence these areas will also be affected heavily. Parks reiterated that women and families will suffer more. Companies will not be able to pay tax and income tax will collapse and more will queue for social grants, yet the state will not have money. Hence there is a multiplicity of factors that will be at play with the job losses.
Mr Parks urged the Committee to squeeze the banks on their criteria and why they are charging so much. Banks have retrenched many and the most affected are women and people of colour. He noted that there is a need for banks to be patriotic and if the Committee does not squeeze the banks it will mean that they will not be able to lend as people will not be able to pay back the loan as a result of high bank fees and job losses. He noted that a lot of countries such as the USA and China have pumped money into their communities during this time and they will get it back through production and employment creation and South Africa should do that as well.
Mr Parks said that this was too big a crisis as workers' lives are at stake. He noted that as COSATU and Parliament they cannot wait for October to push for the reduction of lending power, but they have to show solidarity and do it now.
Mr Z Mbhele (DA) asked the Cooperative Banks Development Agency to unpack and give feedback on the decline in the demands of loans during the lockdown period. He argued that it was surprising that during this difficult time they would have expected a surge in the number of people taking loans to stay afloat.
Mr Mbele also asked about the form and approach of using cooperatives as economic opportunity vehicles have been overlooked and why were they only being used in the agriculture sector and not being spread out to other sectors. He asked if they are involved in awareness campaigns to change that perception about cooperatives.
Mr De Jong responded and said the low uptake of loans was probably because of uncertainty and people being reluctant to take on additional debt that they thought they would not be able to pay back. He noted that now that the economy has opened up, they think more people will come to demand loans to restart their businesses and get them going. He said that when the lockdown started, they called their CFOs around the country to check what was happening, but they were surprised that there was no activity taking place in terms of demanding loans. Responding to cooperatives he noted that the agency is in discussion with SEFA as they want to have them on board and assist in financing the cooperatives. He argued that the current sector was disorganised, and the agency believed in the democracy model and wanted cooperatives to take a more central role in the economy. The agency wants the leadership to talk more about this as they are better positioned. The agency wants an initiative where banks support cooperatives at the community level so that many circulate in these communities. The agency seeks cooperatives and communities to push for that.
Mr Kruger commented and said that to say the agency expects to hear a push from cooperatives is way too much. He noted that the cooperatives expected the agency to do that. Cooperatives in rural areas do not know about the issues of loans and they need to be conscientised and the agency has to do that.
The Chairperson made closing remarks and noted that there is a need for Parliament and the two groups to join hands and advocate to make sure job losses are averted. She said she was happy they are all speaking with one voice that the banks need to be invited as soon as possible to the Committee. The Chairperson said that they supported COSATU and that cooperatives should not focus on agriculture only but on all sectors. She noted that there is too much red tape with banks hence the Committee needs to bring the banks to account.
The Committee Secretary informed Members that the Bank’s Council had notably absconded the meeting, however their meeting had clashed with this one and as a result they had had to cancel. The Committee Secretary noted that if possible they were still coming.
The meeting was adjourned.
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