1. Public Hearings on Financial Sector Transformation
3 May 2017
Presentation to the Standing Committee on Finance and Portfolio Committee on Trade & Industry
Desmond Golding - Chairman CBDA
David de Jong - Supervisor: CFIs
Kobus van Niekerk - Head Central Support Services
Nomadelo Sauli - Head Capacity Building

2. TABLE OF CONTENTS
1. CBDA Position in the Financial Sector Transformation Agenda
2. CBDA Mandate
3. What is a CFI?
CBDA Programs:
4.1 Supervisory Function
4.2 Capacity Building
4.3 Central Support Services
5. Sector Challenges
6. Vision for the sector
7. Co-operative Banking Sector – South African & International Perspectives
8. Recommendations

3. 1. CBDA POSITION ON THE FINANCIAL SECTOR TRANSFORMATION AGENDA

4. 2. CBDA MANDATE Liquidity Support Capacity Supervision & Regulation
Building & Development
Liquidity Support
Stabilisation fund
Supervision & Regulation
Co-operative Banks Act of 2007 (as amended)
Banks Act Exemption Notice 620 of 2014
Co-operatives Act of 2005 (as amended)
National Credit Act of 2005

5. Capacity Building unit Central Support Services unit
CBDA MANDATE -
Achieved through 3 key strategic imperatives
Supervision
Ensures that members deposits are safe and sector institutionally safe & sound
Capacity Building unit
Ensures that the CFI sector is adequately capacitated
Central Support Services unit
Enhance CFI Operational capability
Banking platform
CBDA
To build a strong and vibrant financial co-operative banking sector

6. WHAT IS A CFI?
Co-operative Financial Institution is the umbrella term used for member based deposit-taking financial co-operatives owned and controlled by their members who have a common bond and whose members choose to call themselves:
Credit union
Savings and credit Co-operative (SACCO)
Financial Services Co-operative (FSC)
Financial co-operative
Co-operative Bank

7. The common bond is classified into three types:
WHAT IS A CFI –
Common Bond
The common bond is classified into three types:
Work based, working for the same employer or employed under the same business district;
Associational, have common membership in an association or organization, including religious, social, co-operative, labor or educational groups;
Geographic, reside within the same defined community within rural or urban district.

8. WHAT IS A CFI – Types of CFIs Secondary CFI/Co-op Bank
Tertiary/Apex Co-op Bank
Members: 2 secondary co-ops
To provide services to its members relating to the financial sector
Secondary CFI/Co-op Bank
Members: Primary co-ops
At least 2 primary co-op banks or 2 CFIs or a combination of 1 co-op bank and 1 CFI
A primary co-operative is a co-operative where all the members are individuals. The
purpose of a primary co-operative is to provide employment or services to its members,
and to promote community development. It takes at least five people to form a primary
co-operative.
A secondary co-operative is a co-operative where the members are primary co-operatives.
The purpose of a secondary co-operative is to provide services to its members
relating to the sector where they are active. It takes at least two primary co-operatives to form
a secondary co-operative. Primary co-operatives which are involved in similar activities often
come together in secondary co-operatives.
A tertiary co-operative is a co-operative where the members are secondary co-operatives.
The purpose of a tertiary co-operative is to advocate the interests of the member co-operatives
to government bodies, the private sector and other stakeholders. Another
name for a tertiary co-operative is an apex organisation. An “apex” is the word for the
top of a pyramid shape.
To provide services to its members relating to the financial sector
Primary CFI/Co-op Bank
Members: Individuals
(At least 200 individuals)
To provide services to its members and to promote community development

9. WHY JOIN OR START A CFI? WHAT IS A CFI – Why start/Join CFI? CFI
COMMERCIAL BANKS
Type of organization
Not for profit but to provide financial services to its members
Generate profit for shareholders
Who owns it?
Members. One person 1 vote
Shareholders. 1 share one vote
Board of directors
Elected unpaid volunteers
Paid shareholders
Fees
Typically have fewer or lower fees
Fees are expensive
Income / surplus
Back to Members/owners
Shareholders
Interactions
Co-operative
Competitive
Investment options
Circulates/Invests money in members back into community
Invests in the rich
WHY JOIN OR START A CFI?

10. Cooperative Principles
WHAT IS A CFI –
Cooperative Principles
CFIs are governed by the same co-operative principles as sat out by the International Co-operative Alliance (ICA).
Voluntary and open membership;
Democratic member control;
Members Economic Participation;
Autonomy and Independence;
Education , Training and Information;
Cooperation amongst co-operatives;
Concern for Community.

11. CBDA PROGRAMMES
4.1 Supervision Unit
4.2 Capacity Building Unit
4.3 Central Support Services

12. 4.1 Supervisory Function

13. Supervisory Function - Registration Requirements
Co-operative Financial Institutions
Co-operative Bank
200 members (minimum)
200 members
R Member share capital
R1 million in member deposits
Definition of a common bond
Definition of the common bond
Meet the requirements of the Co-operatives Act
Meet the requirements of the Bank Exemption Notice
Meet the requirements of the Co-operative Banks Act
CBDA rules, prudential standards and operating standards
SARB rules, prudential requirements and operating standards.

14. Supervisory Function - Key Activities
Regulation
Supervision
Registration of CFIs
Renewal of annual licence
De-registration of CFIs
Issuance of infringement notices
Non-prudential registration of Representative and Support orgs.
On-going supervision and monitoring
Onsite Risk based and Compliance
Offsite report analysis
Problem CFI resolution
Refers to the process of a government taking control of a company or industry, which can occur for a variety of reasons. When nationalization occurs, the former owners of the companies may or may not be compensated for their loss in net worth and potential income. Nationalization is most common in developing countries subject to frequent leadership and regime changes. In these instances, nationalization is often a way for a government to expand its economic resources and power

15. 4.2 Capacity Building

16. Capacity Building Unit
Key Activities
Capacity Building Unit
1. Pre-registration Support
2. Training Provision
4. Impact Assessment
3. Direct Technical Assistance

17. Moving towards – Holistic CFI Support
Capacity Building -
Moving towards – Holistic CFI Support
Improved operational efficiency
Informal, formal training, mentorship and other capacity building interventions
Develop strong CFI brand
Build marketing campaigns
Business Process & Systems Engineering
Institutional Strengthening
Branding & Marketing
PPP – CFI Holistic Support – towards vision 2020

18. Enhanced service offering
Capacity Building -
Enhanced service offering
Enhanced Capacity Building Unit
Customised service offering
ICT enabled service offering
Provincial footprint
Strengthened stakeholder relations

19. 4.3 Central Support Services

20. CENTRAL SUPPORT SERVICES
Strategic Objective: To enhance the Operational capability of the participating CFIs and integrate the organisations into the National Payment System;
The Central Support Services has created an enabling environment where the sector can compete on an equal footing with commercial Banks;
Banking Platform Project
The CBDA identified the need for a common system for the Co-operative Financial Institutions and Co-operative Banks that will enable the sector to improve service to their communities, enter the National Payment System and achieve economy of scale.

21. Central Support Services – Banking Platform Components
CO-OPERATIVE FINANCIAL INSTITUTIONS
Banking Platform
FTP Server
Accounting System
MIS & Reporting
Sql
Excel Access
CENTRAL SUPPORT SERVICES
PARTNER BANK (SPONSOR)
NATIONAL PAYMENT SYSTEM

22. 5. Sector Challenges

23. CHALLENGES –
Sector Specific
Low skills base (Finance, Banking etc);
Inaccurate financial reports submitted to SU;
Inadequate capital, low growth trends;
Poor governance structures; (oversight role)
Weak risk management levels;
Lack of understanding and non-compliance to the regulatory framework;

24. CHALLENGES –
Sector Specific
Infrastructure;
Seed funding;
Branding & Marketing;
Manual operations;
Limited product & service offerings;
Constraining regulatory requirements

25. 6. VISION FOR THE SECTOR

26. CO-OPERATIVE BANKING SECTOR STATUS
South African International Perspective
SA – Cooperative Banking Sector as at Feb – CBDA Annual Report
WOCCU Statistics – Dec. 2015

27. Rural
Peri-Urban
Urban

28. Vision for the sector –
Vision 2020

29. Vision for the sector –
Vision 2020

30. Tertiary/National co-op bank
Vision for the sector –
CFI Network
Tertiary/National co-op bank
Provincial
Secondary Co-op Bank
Industries Co-op Bank
SOC Co-op Bank
District co-op bank
Rural CFI
Rural Co-op Bank
Public Sector Co-op Bank
Provincial
Secondary Co-op Bank
Industries Co-op Bank
SOC Co-op Bank
District co-op bank
Rural CFI
Rural Co-op Bank
Public Sector CFI

31. CFIs within business ecosystem
Vision for the sector –
CFIs within business ecosystem
Raw Material
Processing
Manufacturing
Storage
Distribution
Marketing and Supply Coops
Consumer Co-operatives
Agriculture Co-operatives
Financial Co-operatives
Worker Co-operatives- Labour intensive e.g. mining; construction; textiles; and arts and craft
Slide source DTI

32. CO-OPERATIVE BANKING SECTOR STATUS
South African International Perspective
SA – Cooperative Banking Sector as at Feb – CBDA Annual Report
WOCCU Statistics – Dec. 2015

33. CBDA

34. 8. RECOMMENDATIONS

35. RECOMMENDATIONS Recommendation Description Responsible Party
Deliberate policy position on co-operative banking
Government to take firm stand on co-operative banking as a tool for financial sector transformation
Government
National Treasury
SARB
CBDA
Development of a National Co-operative Banking Strategy
Research should be conducted, published and debated on financial sector transformation and co-operative banking sector as a tool for such.
Academia & all stakeholders
Review of the Regulatory & Legislative Framework
R30 million deposit limit
15% external credit
Limited investment vehicles
Exclusion of CFIs from financial support (co-operatives Act )
Capitalisation of CFIs
co-operative Banking Sector

36. RECOMMENDATIONS Recommendation Description Responsible Party
Implementation of the deposit insurance fund
CFI members are 100% exposed if the institution loses funds for some reason or the other, yet they are the more vulnerable members of society.
National Treasury
SARB
CBDA
co-operative Banking Sector
Review of the co-operative Banking Model
Dependence on member contributions for capitalisation delays economic growth
Emphasis should be on enterprise lending to support other SMMEs and promote CFIs as financial intermediaries at local level
Skills requirements & competency of board of directors, managers and personnel
Government
SEDA,
SEFA,
Department of Small Business Development
BANKSETA

37. RECOMMENDATIONS Recommendation Description Responsible Party
Adequate resourcing of the CBDA
National footprint to enhance support especially monthly monitoring visits – housed at SEDA/SEFA /DED offices
Funding the banking platform as a tool to level the playing field for new entrants into the banking sector
The R16 million budget limits the performance of the Agency
Government
National Treasury
Department of Small Business Development
Prov. DEDs
Location of the CBDA
Government to decide on appropriate location of the CBDA especially with the implementation of the twin peaks regulatory framework – which sees the Supervision unit moving to SARB
Would the CBDA still be appropriately placed at National Treasury or better placed at the DSBD as the department is the custodian of coops – for a 1 stop shop
CBDA

38. RECOMMENDATIONS Recommendation Description Responsible
Review and close monitoring of the Financial Sector Charter
Set clear targets for the support of the co- operative banking sector as new entrants in the financial sector. For instance –
10% of total fines collected from banks for the price fixing scandal to go towards co-operative banking support fund;
1% of commercial banks annual turnover to go towards support of new entrants (coop banking sector);
Set clear growth targets for co-operative banking sector, in terms of membership, deposits, turnover, and small business support (productive loans) 2018 – 2030, e.g
Membership – by 2020
Deposits – R500 million by 2020
Financial Sector Charter Council
NEDLAC
Government
CBDA
Private Sector
co-operative Banking Sector

39. RECOMMENDATIONS Recommendation Description Responsible Party
Review and close monitoring of the Financial Sector Charter
Mentorship / Incubation for new entrants in the banking sector by experienced banking experts
Financial Sector Charter Council
NEDLAC
Government
CBDA
Private Sector
co-operative Banking Sector
Annual progress reports on the targets by Financial Sector Charter
Financial Sector Charter Council &
All stakeholders

40. RECOMMENDATIONS Recommendation Description Responsible Party
Establishment of a co-operative banking sector Industry body
For the sector to succeed financially and otherwise it is important that they unite and speak with one voice.
Co-operative Banking Sector
Establishment of a Secondary Co-operative Bank
To provide the sector with liquidity and to ensure the co-operatives and SMMEs deposit their money in their own bank.
Commercial banks to be urged to assist with sponsorship into the National Payment System (NPS)
CBDA
Private Sector
NEDLAC
FSCC
CFI Infrastructure enhancement
CFI premises do not inspire confidence to attract different market segments
Government assist with use some of the government premises that are no longer utilized – even better – negotiate alliance with post bank to cooperate and share existing infrastructure
Government

41. THANK YOU