"Participation Builds Unity"
"MADE IN AFRICA - FOR AFRICA"
"Participation Builds Unity"
"MADE IN AFRICA - FOR AFRICA"
"ACCESS TO FINANCE"
TUESDAY 08 MARCH 2005
HILTON SANDTON
SANDTON - SOUTH AFRICA
THIS EVENT WAS FINANCIALLY SUPPORTED BY:
.... each contributing ZAR5000.00 towards the cost of this event!
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Our guest speaker was Mr. Cas COOVADIA (Managing Director) The Banking Association of South Africa!
FDA PARTNER and loyal supporter of the FDA, Bradley BOTHMA, Director, Sizanani Advisory Services, delivered and inspiring closing statement and express our gratitude to our guest speaker.
Some 205 guests attended this event!
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We would like to express our sincere gratitude to:
for transcribing the presentation and speeches for the evening!
Access to Finance
Peter Metcalfe – CEO of the FDA
Background to Access to Finance
Peter reminded guests that running a business is like owning or taming a stallion. To see the animal in its wild form is awesome and becomes your vision of how you want to run your business one day. Oozing energy, this vision becomes everything you want for your business. But, first you must get a saddle to your stallion – ie get the business under control. The jockey must get on, but the jockey is going to get thrown off at some stage. The secret is for the jockey to get up, dust him- or herself off and get back on.
It is how the jockey gets back on the horse and how he or she controls the horse is what makes the difference. The banks and financial institutions are looking at that – they are interested, not only in the horse, but also in the jockey. You will not be able to feed the horse the oats unless present yourself properly to the financial institution you are approaching.
Cas COOVADIA – MD of Banking Association
At the Banking Association, we are beginning to have a broader understanding of access to finance and access to money for business and personal use.
To start, I would like to share what my understanding of “access to finance” is. There are 7 issues I would like to briefly touch on.
1. Geographic access to points where people can access money – deposit or withdraw cash and do some sort of banking.
All of these factors relate to access to finance and all these factors must be in place for people to get sustainable access to finance and to be serviced appropriately by financial institutions.
The Banking Association takes a broad view of access to finance.
The critical instrument that is driving the banking sector at this point in time, and should be driving the entire financial sector, is the Financial Sector Charter (FSC). It is driving access issues and it is driving transformation in the banking sector. It is the one instrument into which a substantial amount of capital, resources, time and money is being placed, right from the top.
We have an operating board at the banking council, on which either CEOs of major banking groups and representatives of the smaller or foreign banks or their immediate delegates sit. We meet with the board once every two weeks and this is where the strategic drive and direction for the FSC is coming from within the banking sector.
Just to get these people together once every two weeks is quite a significant achievement and proof that the charter is driving transformation.
Access is a critical area to be addressed in the FSC scorecard of a 100 points, which includes how you perform on Employment Equity (EE) issues, ownership issues, skills development, Corporate Social Investment (CSI), procurement and empowerment financing and access.
Effectively, access counts for 35 of the 100 points on the scorecard. Thus, there is quite significant emphasis on access in the scorecard. That is because, firstly, there is a moral imperative to increase access to broader spectrum of our people and, secondly, there is a political imperative as government considers access to be extremely important. But more important than both these factors, is the fact that banks are beginning to see the commercial and economic imperative of creating access for the broader spectrum of our people.
In short, if the banking sector get the provision of access right, we are going to make a lot of money. If we deliver financial services to broad spectrum of people sustainably and affordably, it will create a win-win situation.
Banks are not a social institution, they are there to make money, like any other business institution. But, banks also have a particular role to play in the economy and they have to make money responsibly.
The charter also addresses a number of aspects I referred to earlier in reference to access to finance.
The charter applies to the entire financial sector. There is often a misperception regarding this, even to the levels of the presidency. Just before delivering his State of the Nation address, the president’s office phoned to confirm a media headline that said banks had committed R85 billion to black economic empowerment financing over the next 5 years. I was quoted in the media not as saying “banks” but as saying “financial institutions”. But the headlines in correctly read “banks”, creating a misperception of who has committed to the FSC.
It is time that the public realises that the banking sector is beginning, and I stress beginning, to deliver financial services in ways they have not used in the past. The insurance industry, the assurance industry, the unit trust industry and others must also find new ways of delivering financial services, because they have made a commitment in terms of the charter.
We have undertaken substantial work in the banking industry to position ourselves to now implement the charter. There are about 6 working groups that meet at least once every two weeks. One working group is looking at small to medium enterprise, one is tasked with housing, another is working on procurement, while yet another is tasked with access issues.
With the planning around the Mzansi account, everything was considered – from how banks operate, to how governments operate, to how state-owned institutions operate and we are putting to government detailed proposals on how we believe how all of these factors should be interacting with each other.
These task groups have in many instances identified weaknesses in banks and the way they operate. They have also identified solutions to fix these weaknesses and to make the charter work.
Similarly, we’ve identified and respectfully submitted to government what we consider to be weaknesses in government. We have done so because this must be a partnership between the financial sector and government, and other stakeholders as well.
There is a Charter Council in place that will monitor all of these activities. The Board of the Charter Council is not the Financial Sector monitoring the Financial Sector. The Board of the Charter Council consists of representatives from labour, community groups, the National Treasury, the Presidency, the DTI, black interests in the financial sector and the trade associations. Thus, multi-stakeholder board will be monitoring our progress on the charter.
I would like to address some critical deliverables in the FSC, particularly as it impacts on access. I will also look at where the banking sector is in terms of delivery and also what still needs to be done.
There is a commitment in the FSC that by 2008 we will provide service points, in other words, a place where people can do banking, in the rural areas. A service point may a point-of-sale kind of device in a trading store, a mini ATM or brick and concrete bank branch, or it might be cellphone technology. By 2008, the target is that 80% of people in the LSM 1-5 categories will have a point where they can do banking within, at most, 20km of where they work or stay. We are trying to reduce this distance. At this point in time, the service point for about 72% of LSM 1-5 is within 20 km, so we need to provide for another 8% by 2008.
The FSC says that there should be a sufficiently wide range of first order retail financial products available to this sector of our population. First order retail financial products are savings, housing finance, agriculture finance and SMME finance.
So, how far are we with that? We’ve launched a savings product in October called Mzansi, which is a savings product we have committed to operate on a break-even basis and which will be independently audited every year.
If Mzansi does make profit, it will be plowed into a fund to increase competition in the sector and to facilitate the building of capacity of financial sector co-operatives. This initiative cuts the costs down to the bone – there are no monthly administration fees, etc.
Between October and now, over 700,000 Mzansi accounts have been opened. 92% of those accounts are for people who have not had a banking account before. Thus, this initiative has had an impact and brought a lot of people into the banking system.
56% of these account holders are women and the average monthly balance in these accounts is R290. So, we have effectively penetrated the market we need to be in. The initiative has been a success in our view, but there will be a thorough review to decide where we go from here.
There has not been a great deal of marketing done for Mzansi – the product marketed itself. The Post Office is one of the distributors and the Post Office, until recently, opened the largest amount of accounts of any financial institution.
In respect of low income housing – the commitment in terms of the charter is to plow R47 billion into housing finance by 2008. A substantial amount of work has been done for households earning between R1500 and R7500 per month.
For development agriculture, the emphasis will be on agriculture projects that have not been funded up to now. The target is R1.5 billion in next 5 years and some work done on that
In respect of SME’s and particularly black SME’s, the charter commitment is R5 billion in next 5 year and some work has also been done on that.
This, if one takes all these commitments together, it amounts to about R53.5 billion in next 5 years that will go into issues related to access.
We will be measured on this on an annual basis and will have to report to the FSC Council about how we are doing. Thus, it is imperative to the sector to make it work.
Where are we?
Mzansi’s success has prompted community and labour representative on the Council to press for an expansion of the range of services provided by Mzansi and this will form part of the review that will be done.
A substantial amount of work has been done in terms of low income housing finance by a team working full time at the Banking Association. We’ve decided that banks will originate those loans and then securitise them into a vehicle so that they get them off the books and more money begins to circulate. Already, R9 million has been spent to set up the securitisation vehicle. We have brought in accepted international experts on securitisation and asked them to set it up. Once we have sign off from government, we can get going on this.
We’ve agreed with government on an 8 point transformation agenda for housing which includes mortgage finance, which includes rental housing, which includes holistic development. Thus, housing finance is not just about putting up houses. It is also using part of the infrastructure finance commitment in the charter, as well as part of the SMMe finance commitment and looking at particular pilot areas in which we need to develop the social and economic infrastructure on which the housing infrastructure can be built.
In terms of this integrated development, we are waiting for a meeting with the Minister of Housing for sign off from government on this and believe that, in partnership with government, we are ready to move.
We are also in the process of establishing a partnership with the Land Bank and the Department of Agriculture, to see how we can roll out the agriculture finance part of the FSC to link into some of the programmes of the Department of Agriculture and the Land Bank.
Regarding black SME financing, we’ve done work on non-financial support issues and how best to achieve this. We are currently doing some work on risk mitigation and risk sharing issues relating to SME finance and we should be ready to roll on that pretty soon.
There is much more to be done. Ultimately, you need to test us in the next 2-3 years as these things unfold. If I am here and invited, and if I say we are sorry, we have not delivered – then you can chop my neck off.
But, I have no doubt I will stand here and show you the delivery that has happened. Some people would say, and in some instances they are right, that we are taking a long time and there is a lot of talk. But, we come from a difficult sector and there have been problems in sector. Yet, in the 7 years I have been in the Backing Council, I have not seen the kind of energy I am seeing now, for a whole range of reasons, so I have no doubt we will deliver.
What else must be done?
We need to look at the Mzansi product – whether to enhance the product or learn lessons from it and begin to deliver products along similar lines to address, for instance, access to finance for informal traders – a critical issue that we have put on the table.
Also needed is a housing initiative for people earning less than R1500 a month – this sector needs to be addressed in some way or the other. We believe that primarily that is a role for government in some sort of social housing programme, but we will work with government to facilitate such a process. While we are addressing and certainly doing a lot of work on the R1500–R7500 income category, we would work with government to see how we can help people falling below this threshold.
We also need to explore range of collateral options particularly in the SMME market where collateral has always been a problem. We are examining a range of options, so we can use different forms of collateral – we might need to have session registers, online session registers, and so on, to enable this.
To make the interaction between banks and consumers simpler, we have committed in the Code of Banking practice to simplify contracts and documentation, and the banking ombudsman is pushing very hard to make this happen.
So, there is much work to be done, but in the 2 years since Charter was launched much work has been done and we are now ready to make some sort of a difference.
I think there has been undoubted progress in the last 2 or 3 years. If I look at where the key leadership people in the banking sector were three years ago and where they are today, I have no doubt that there have been changes.
We had a Charter Council bosberaad three weekends ago and a senior banker from one of the big banks said on Sunday, as we were rounding up: “Cas, we’ve got a terrific board here.” I asked if this was so even with labour and community representatives there and he said: “Especially with them here.” A year ago that person would have said something entirely different, but now people are beginning to realise the value and value add that different constituents can bring to the table. And they do bring significant value.
A significant amount of work has been done and continues to be done to launch the implementation programme. We should have reported to the Charter Council on the performance for 2004 by end of this month. The Charter Council, at present, simply has a board – they have no office, no staff and no infrastructure. Thus, it has been decided to set up an infrastructure during May and then give institutions 3 months notice to submit audited reports on how they have performed against the scorecard in 2004.
This will be done even though the charter scorecard is not yet complete. Financial institutions will be rated on their performance and the ratings will be made public. Public can then vote with their feet and government will decide which bank they want to give business to.
There are outstanding issues relating to the FSC – we thought we were almost there until the DTI released their Codes of Good Practice. If these Codes go through, it will basically kill 4 years of very hard work and take us back to the start. So, we are talking to the DTI about that.
A critical issue stands out in all these developments. In discussions with government we have been absolutely clear about it and government accepts this – this is dynamic partnership between the financial sector, the government and other stakeholders.
The banks must stretch and do more than they are doing, they must take greater risks than they are taking now, but, they must be commercially viable otherwise this entire initiative will be a flash in pan. We must substantially transform this sector - not deliver BEE for 5 years in a way that’s not financially and commercially sustainable and then close shop in 5 year’s time for business as usual.
Beyond particular areas of risk and levels of risk, it becomes commercially unsustainable. At this point, government is expected to come to the party to mitigate the risk, share the risk, and certainly to take on the political and moral risk that exist in many areas of our country. Government understands that this is so in our partnership.
In 5 years, the Charter Council will conduct a significant assessment and review of our progress. If we have over-performed, the Council could decide that for next 5 years the targets must be reviewed upwards.
If we have under-performed for good reasons, the targets may be reviewed downwards. There may be changes in principles, changes in the way we do things as we learn over the next 5 years, and these changes will be reviewed and re-assessed.
The Charter Council now has representatives of all stakeholders and what is exciting that they have coalesced, despite regular disagreements. There is a pragmatic mature approach: we have a common objective in a very important financial sector of this country. We need to enable this sector to grow and become more internationally competitive, but we must also enable it to become relevant to majority of our people.
This is not either /or but complementary objectives. There is so much positive energy gpoing into making these objectives a reality, that it will undoubtedly begin to show results in the next 3 to 4 years.
In conclusion, I urge you to judge the industry by what it delivers or not in next few years, and not by where it is right now.
We have had to effectively fundamentally transform the sector – change mindsets, change paradigms, create a different way of thinking. We have gone a substantial way in doing so and we will deliver in future.
Q You mentioned seven issues pertinent to access to finance that seem to redress some of problems I encountered. A month ago I went to ABSA and they put it very clearly to me: no matter how great my business plan, they want surety. This is just not possible in my situation. How far is the Association in addressing this issue?
Q You have spoken about the importance of commercial viability for the major banks in undertaking these initiatives. While we all understand the importance for banks to make money, the question raised centers around the expectation for government to come to the party when risks are taken by banks that are not considered commercially viable. Thus the government acts as a surety or collateral for banks.
Q SMME’s and SME’s are providers of jobs in economy and certainly does not have the time and deep pockets that banks have to be around for 5 years. Statistic indicate that 80% of businesses fail within 5 years. The Banking Association expects government to provide collateral for banks, but banks are not prepared to provide collateral for SMME’s.
So if banks say they can address 80% of LSM 1-5 and government says banks must address 100% of that category, then the banks will ask government to help in addressing the additional 20%. The banking sector can do much without government intervention, but government does have a role in certain areas.
With regards to the surety required by banks, we are investigating other options for collateral. For example, we should be saying we’ll take a session on machinery. Thus, we will finance a loan for machinery and take a session on the machinery. In some countries, banks even take chickens and goats as surety, because they have systems to track such transactions.
Even if banks wanted to lend money without surety, the Banking Association would object, because it is not good lending practice and it is not good business practice. One cannot say to a bank: I’m not prepared to take any risk in my own business - you take all the risk – that is not the way of an entrepreneur.
When we want to establish a small business, we want money and the only thing most of us think about is to go to the bank for a loan. One of the reasons why 80% of business fail is because they are totally debt funded.
What a business should have is a mixture of: debt funding, your own money and some equity and venture capital.
One of the problems we have in SA, and we’re talking the venture capital associations in the country about this, is that there aren’t any venture capitalists for small business. We must address this problem if we are to address the problem of sustainability of small businesses.
Banks are not great at this, but I also think we must be clear that firstly, banks are not asking government to participate in commercial risk. Secondly, banks will not lend money without some own contribution, in some form or other from the lender, because it is not good for business for the bank and also not for the entrepreneur.
A I know of a number of banks that are involved in education programmes – one bank has launched a R6 million programme in schools. The Charter also talks about, firstly, consumer education and, secondly, Corporate Social Investment (CSI) with particular reference to educational issues and particular reference to benefits for black children in education. If a bank wants to do some CSI activity in terms of education, they are going to have to show that benefit is going to black kids.
The Charter does commit banks to education and some individual banks are already quite significantly involved in this. I agree that it is quite critical and something that needs to be done.
A The Charter has up now not specifically talked about women, with the exception of the employment equity side. We have recognised that our definition of BBBEE is probably one of the weaknesses of the Charter in comparison to the Code of Good Banking Practice and the Draft Codes of Good Practice.
The Codes specify women and people in rural areas in the definitions. I am certainly of the view that the Charter actually needs to define BBBEE and the beneficiaries of BBBEE to include women and people in rural areas. Certainly on the agricultural loan side we’ll do much work in the rural areas. We want to look at doing some of the work on the housing side in the rural areas too.
One of the things always envisaged under Mzansi, is that we will use Mzansi to track people’s savings records. Most savers are actually women and it gives us a good base to begin interaction with women and extend financial services to them.
A I am totally in the dark regarding overseas investment – it is an issue not raised with me or Banking Council before and don’t see any reason why banks are not facilitating overseas investment and issue should be discussed and taken further.
A In terms of the banking sector promoting exports and providing working capital for exports – if it is viable it should be no problem. I certainly don’t know of any discrimination against exporters in the banking sector. If the export business is a good business proposition and makes business sense, banks should do the finance.
Q The red lining which was broad based to a number of areas especially, for example, the Johannesburg central area – has this been addressed?
A One of the critical aspects we are working on in the housing scenario is to do away with red lining and government strongly supports this. In terms of the Johannesburg CBD – I also serve on the Board of Trust for Housing – Urban Housing Finance – which has NHF (National Housing Fund) and other funding. The Trust has been going for a year and has placed R50 million into the inner city and Yeoville, Hillbrow and those areas. This investment has been in financing residential landlords and small landlords, as well as black entrepreneurs who want to get into real estate.
A major bank has also just signed a R25 million wholesale finance deal, so they’re coming in – not necessarily directly financing the mortgage but they are coming in on the back of success stories.
One of the critical aspects of delivery on the Charter is the facilitation of these intermediary organisations that know and deal with the market better and banks can finance them and help them grow. Different mechanisms are coming to the fore.
A The project was certainly not started by government – it was purely a banking industry initiative. We did work in conjunction with the Post Office but the banks provide all the resources with government’s blessing.
In fact, government is not involved in entire FSC process. Government has always been of the view that this is a voluntary initiative by financial services sector. Government has been invited to join the FSC Council Board and they accepted. Apart from this, it has been purely a private sector initiative
Monique METCALFE TERRAZAS
MONIQUE
Peter's introduction offered some principals to raising money and what is required.
2. Provision of services related to actual access to cash. If you have a loan from the bank and the bank does not service it correctly, you are being shortchanged.
3. Access to a broad range of financial products – meaning that banks should be able to cater to a diverse market in the country. They have not done so very well in the past, but the issues are being addressed.
4. Actual finance – money in your hands, money in your account, what you actually go to the bank for when you ask for a loan.
5. Some mechanism for you to address problems with financial institutions and get redress for these complaints.
6. The issue of disclosure. There must be a measure of disclosure of information by financial institutions, to enable the consumer to make appropriate choices. If the consumer does not have access to this information, they do not know what sort of services or finance to access.
7. Making the interaction between consumers and financial institutions simple, not complex.
Questions
A I must be clear: the Banking Association does not ask government to help manage commercial risk – that is the role of banks. But, if we have situation where we need to provide a particular service and government wants the service provided in particular socio-economic conditions, then government must come to party to help banks provide those services in the way government want it to be provided.
Q How is the Banking Association creating awareness? It is a business responsibility to create awareness and to provide education about what is finance and how to manage finance. This will lead to sustainability.
Q Women and the FSC – what is being done to increase the participation of women?
Q The Banking Association’s opinion on overseas investment. Overseas investors would like to put a lot more money into SA, but find it very awkward due to the fact that the banking sector doesn’t seem to have the level of interest, nor a standard for foreigners to bank here. It has taken me over 3 years to open bank account here. I put in R8 million in cash into this country.
Q Any mechanism in banking sector for encouraging exports to other countries, especially in Africa, and to promote the free trade agreement signed by government?
Q Who started the Mzansi project - government or Banking Sector?
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FOR A LIST OF GUESTS WHO PARTICIPATED IN THIS NETWORKING EVENT:
CONTACT US
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The ever-popular FDA Networking followed the presentations!
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THANK YOU:
GEARHOUSE SOUTH AFRICA for providing, as usual, exceptional professional service, all the technical equipment and technical expertise.
I would like to express my sincere gratitude to:
Addi LANG - Return to Roots – for all the help and being a blessing.
Gary TERRAZAS - HiTech Marketing – Name Tags and Programmesl
Michelle METCALFE – GIP – just being there and assisting
Monique TERRAZAS - Foundation for the Development of Africa – for everything
Riverose LETHOKO - Janssen Cilag – for always being available to help
Rosa-Marie METCALFE - Foundation for the Development of Africa – what can I say!
Everyone who attended and contributed to the event!
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"THE LUCKY 'BUSINESS CARD' DRAW"
Proudly Sponsored By:
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We would like to thank
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GEARHOUSE SOUTH AFRICA
For all the technical support and technical equipment!
EVENT FEEDBACK
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14 March 2005
Hi Peter
I would like to take this opportunity to thank you for putting together this informative function last week Tuesday.
Cas Coovadia was excellent and he really passed on some very informative news to us.
Many thanks
Best Regards
Justin Kershan Pillay
Writestuff Publishing
South Africa
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11 March 2005
Thanks for the unexpected bonus of winning TWO prizes.... a first for me!! And a very informative evening to boot.
Thank you for organising.
Nina
Nina VENJAKOB
Ditoro Craft School and Centre
South Africa
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11 March 2005
Dear Peter
Firstly I would like to thank you for the presentation on "Access to
finance", this is the first presentation I have attended for the FDA.
Secondly I was wondering if you would consider being a guest speaker at one
of our rotary dinners.The group meets every thursday evening, we invite
speakers together with their partners to join us for dinner and then speak
on a topic of their choice.
The FDA is a very interesting organisation and I am sure you will have lots
to say to the members of Rotary, perhaps you will even get new members or
sponsors from the little presentation.
Celeste RAYNARD
Emma Securities and Acceptances (Pty) Ltd
South Africa
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