BDM speaks to Dr Maureen Tong, a shareholder and Chair of the Board at the newly established YWBN Co-operative Financial Institution (CFI) which is the first step towards forming YWBN Co-operative Bank
BDM: Great to talk to you again, Dr Maureen Tong.
DMT: Thanks indeed for the opportunity that BDM continues to provide me to share ideas and some of the initiatives that I am involved in.
BDM: The last time we spoke was when you shared with us the keynote address that you delivered at the Women in Science Awards (WISA) ceremony on 13 August 2015. I recall that your keynote made reference to an initiative to establish a majority woman-owned co-operative bank. We understand that you are involved in such an initiative?
DMT: Indeed on 7 August 2015, the week before WISA 2015 the Minister of Science and Technology, Ms Naledi Pandor hosted the morning show of PowerFM as part of Women’s month. One of her guests was Ms Chichi Maponya, the Chairperson of BrandSA. Minister Pandor challenged Ms Maponya to lead an initiative to establish the first woman-owned co-operative bank in South Africa. I indicated my keynote address at WISA 2015 that the Young Women Business Network (YWBN) is working towards establishing a majority women-owned cooperative bank in South Africa.
BDM: Have there been any further developments since then?
DMT: There have been many exciting developments! We submitted our CFI application in September 2015; held our AGM on 31 October 2015 and on 2 December 2015 National Treasury approved the license for YWBN to become a Co-operative Finance Institution (CFI). The YWBN CFI is registered under registration number 2015/014461/24!
BDM: That is a great achievement!
DMT: The Managing Director of the YWBN CFI, Ms Nthabeleng Likotsi ensured that we did not rest on our laurels. Two days after National Treasury informed us that we had been registered as a CFI, we held our launch at Germiston Lake on 4 December 2015, a celebration at which the Mayor of Ekurhuleni, Cllr Mondli Gungubele delivered the keynote address. This is the first step towards registering YWBN Co-operative Bank, which will be the first in South Africa to focus on black women professionals, entrepreneurs and business people. The Premier of Gauteng mentioned YWBN CFI in the State of the Province Address on Monday 22 February 2016. This shows that the Gauteng government is proud of our achievements!
BDM: What requirements did YWBN have to meet to be registered as a CFI on 2 December 2015?
DMT: The Co-operative Banks Development Agency (CBDA), an agency that reports to National Treasury regulates and supervises CFIs. In order to register as a CFI, we had to apply to the CBDA, which sets out the minimum requirements as follows:
R100 000 in share capital
must be solvent (liabilities must not exceed assets)
must define the common bond among members
meet the requirements of the Co-operatives Act 14 of 2005
the requirements of the Bank Act Exemption Notice (as amended from time to time); and
adherence to the CBDA Rules, prudential and operating standards.
BDM: How many members does the YWBN CFI now have and what is value of share capital?
DMT: We currently have over 250 members who have collectively invested over R2.5 million! At the time of registration in December 2015 we had 220 members and over R 2.2 million in share capital. We therefore exceeded the minimum requirements even at the time of registration. We are very ambitious and plan to register the co-operative bank in the shortest possible time
BDM: Impressive! Is this is a woman-only initiative?
DMT: Our intention is to have 60% black women ownership at all times. Men and other races will therefore own 40%. Our Constitution states that very clearly and we plan to honour that commitment with both the CFI and once we have a license to become a co-operative bank
BDM: What is a Co-operative Financial Institution (CFI)?
DMT: A Co-operative Financial Institution (CFI) is a financial co-operative wholly owned by its members. It is an institution that encourages savings in order to provide responsible credit and other services to its members at a fair rate. The surplus generated may be distributed amongst its members or toward improving services required by members.
The Objectives of the YWBN CFI are:
To promote and advance the social and economic welfare of our members by enhancing access to financial services under sustainable conditions by providing banking services.
To encourage savings by providing a means whereby such savings may receive a competitive rate of interest.
To provide financial and investment services to our shareholders. YWBN CFI has the full rights, powers, privileges to carry out and undertake business, act or enter into any transaction on behalf of its members.
To implement savings programs that is aligned to young professionals and budding entrepreneurs
To provide accessible finance by removing barrier to credit and loans
DMT: To become a shareholder you pay a once-off share capital contribution of R 10 000 and a non-refundable annual R 550 administration fee.
BDM: We heard that shareholders can now make savings at CFI, how does that work?
DMT: From 1 March 2016 the YWBN CFI is allowed to take deposits. This is done in terms of Banks Exemption Notice 404 of 2012. Taking deposits is normally reserved for banks only.
BDM: How do you administer this deposit-taking responsibility?
DMT: The Co-operative Banks Act 40 of 2007 stipulates that to become a co-operative bank, CFIs should have at least 200 members and R 1 million rand in savings before they can apply to the South African Reserve Bank for a license to operate as a co-operative bank.
In order to ensure that the YWBN CFI has the necessary R 1 million in savings as required by South African Reserve Bank, we require our shareholders to make monthly savings of R 1000 per month over 5 years. This will add up to R 60 000 investment for each of our shareholders, plus the R 10 000 they paid at the time of joining.
BDM: You are therefore looking for people who are willing to invest in the CFI and later the co-operative bank for at least 5 years?
DMT: Indeed we are looking for people who are committed to make an investment for a minimum of 5 years. The R 1000 monthly savings that they make will be ‘locked in’ for a minimum of 5 years before we declare a dividend. Those wanting to make a quick buck are therefore unlikely to find this attractive. Those willing to invest will however be very pleased with the outcome.
BDM: What are the responsibilities of the shareholders apart from making the monthly savings?
DMT: This is a member-funded investment therefore it is every member’s responsibility to recruit other members/shareholders. The secret to success in co-operative banking is in the numbers, the more members we have the more we can do to serve our members thereby increasing our success. Further, each shareholder has a right and responsibility to attend the Annual General Meeting (AGM). The first AGM took place on 31 October 2015 as part of the requirements for us to become registered as a CFI. As I indicated, we were awarded the CFI license on 2 December 2015. The date for the 2016 AGM will be announced in due course.
BDM: Who is responsible for the day-to-day running of the YWBN CFI?
DMT: The Founder of YWBN Holdings, Ms Nthabeleng Likotsi, who is also a shareholder of the YWBN CFI serves as the Managing Director. She is the driving force behind this initiative from its inception. Our office administrator is Ms Kamogelo Masenamela who is also a shareholder.
BDM: Is there a Board of Directors to ensure that the CFI is properly governed?
DMT: The AGM of 31 October 2015 appointed a Board that is responsible for the governance of the CFI. The members of the Board are: Dr Maureen Tong; Dr Poloko Leotlela who is the only man on the Board; Ms Irene Phumaphi Thwala; Ms Portia Mdekazi; Ms Yonela Jeneto; Ms Ntsiki Sisulu-Singapi; and Ms Yvonne Mashigo.
BDM: What other governance structures are in place?
DMT: The Board meeting of 18 January 2016 elected Dr Maureen Tong as Chairperson and Dr Poloko Leotlela as Deputy Chairperson of the Board. Ms Yonela Jeneto, who is a qualified Chartered Accountant, is the Treasurer. The Company Secretary is Ms Yvonne Mashigo.
The Board Committees are established as follows: Investment Committee is led by Dr Poloko Leotlela; the Marketing Committee is led by Ms Irene Phumaphi Thwala; the Education and Governance Committee is led by Ms Ntsiki Sisulu-Singapi; the Credit Committee is led by Ms Portia Mdekazi.
BDM: What products and services does the YWBN CFI plan to offer?
DMT: We currently have the compulsory monthly savings of R 1000 per share holder and the optional group holiday savings of R 2000 per month. We also invite all the stockvels, society clubs, and other groups to save their monthly collections with us. We are currently developing other products and services. Watch this space!
BDM: Is there government support for co-operatives?
DMT: The CBDA at the National Treasury is responsible for supporting cooperatives and ensure that they are managed and governed properly. For example, there is the office of the Supervisor which provides policy support and undertakes onsite visits to ensure that the CFI operates efficiently. Another benefit of the CBDA supervision is that as a deposit taking CFI we are allowed to use the banking platform developed by the CBDA
BDM: What other support is available to CFIs?
DMT: The capacity building support from the CBDA includes Credit Committee training; Supervisory Committee training; financial management and audit preparations. The Managing Director and the Manager for Capacity Support attended the opening session of the AGM on 31 October 2015 prior to granting us the license on 2 December 2015 to ensure the AGM was quorate and proper governance rules were followed. The Bank Sector Education and Training Agency (Bank SETA) also made a presentation at the AGM to indicate what support is available to co-operatives. This includes Audit Committee training; co-operative governance training; co-operative board members training; co-operative credit management; and co-operative loans management; co-operative financial management. Bank SETA also offers a Diploma in CFI Management.
BDM: How does South Africa rank in relation to other countries regarding CFIs?
DMT: According to research undertaken by the CBDA, South Africa is number 64 in the world in terms of capital value of CFIs. In the United States CFIs are capitalised at $ 1 trillion; in India CFIs are worth $ 42 billion; Brazil $ 19 billion; and Columbia $ 3 billion. In Africa, Kenya leads at position 11 with $ 5 billion; Tanzania is number 35 with $ 270 million; Cameroon is at position 40 with $ 250 million; South Africa is at position 64 with only $ 20 million. YWBN CFI plans to change South Africa’s ranking in this regard.
BDM: Are financial cooperatives all called CFIs?
DMT: No, some are called Credit Unions; Savings and Credit Co-operatives (SACCOs). Some examples are the Kenya Co-operative Bank; Harvard University Employees Credit Union; etc.
BDM: What is the difference between CFIs and commercial banks?
DMT: The biggest difference is that CFIs are owned, governed and managed by members. Members who are shareholders attend AGMs at which they appoint the Board to govern the CFI. Members of the Board contribute their skills and time to the CFI on a non-remunerative basis, meaning Board members do not take board fees. The profits and losses of the CFI are carried by the members/shareholders. CFIs exist for the benefit of their members. The fees charged for loans taken by members are therefore lower than those charged by commercial banks.
Commercial banks on the other hand are owned by shareholders, often using very complicated ownership structures which in real terms keep ownership to a very small number of people. Shareholders of a commercial bank take all the profit. Clients pay a variety of fees, notification fees, withdrawal fees, cash deposit fees, deposit fees, etc.
BDM: CFIs therefore function primarily for the benefit of members?
DMT: That is indeed the case. Members are bound by a common bond, meaning they have a lot in common and therefore share the same values and interests. This guides how the co-operative is managed. Members derive economic benefit and this in turn ensures economic empowerment for a wider community. Members are able to take loans and do business with the CFI on terms they would otherwise not enjoy with commercial banks. CFIs enjoy autonomy and collaborate with other CFIs across national, regional and international borders. This ensures sharing of best practice and lessons learned
BDM: Has YWBN CFI started collaborating with others and taken study tours?
DMT: Indeed, in February 2016 our Managing Director, Ms Nthabeleng Likotsi went to Kenya, the leading African country as far as CFIs are concerned, to learn from other leading SACCOs (CFI’s) in Kenya such as the Police SACCO and STIMA SACCO. She also met with their regulation body and the Department of Co-operatives which has been supportive of SACCOs from the beginning. The Kenyan Government played a major role in the establishment of SACCOs and the amazing thing is even the Members of Parliament have their own SACCO, that’s how big the sector is in Kenya and we wish the same for South Africa
BDM: You said that the next step is to form a co-operative bank. What are the requirements for YWBN CFI to become a co-operative bank?
DMT: We are currently governed by the Cooperatives Act 14 of 2005 and fall under the supervision of the CBDA at National Treasury. Once we become a co-operative bank we will be governed by the Reserve Bank of South Africa and would have to meet the requirements of the Co-operatives Bank Act 40 of 2007. We would also need to satisfy the requirements of the National Credit Act 34 of 2005 which applies to all credit providers. The Act requires that any institution, which gives out more than 100 loans or loans to the value of R500 000 or more, should register with the National Credit Regulator.
BDM: Very ambitious indeed! How many co-operative banks exist in South Africa?
DMT: There are currently on 2 cooperative banks in South Africa, namely the Ditsobotla Co-operative Bank and Orania Co-operative Bank
BDM: How do you plan to meet the requirements to become a co-operative bank?
DMT: We are therefore on a massive recruitment drive to increase our membership and to ensure that we have R 1 million worth of savings. Our members are saving R 1000 per month to ensure we meet this requirement. We are currently doing market research to develop more products and services to ensure that we get our co-operative banking license in the shortest time possible.
BDM: Going into the future, what else is in store?
DMT: There is no reason why we can’t dream of becoming a commercial bank in the future. There has been much talk of establishing a black- owned bank in South Africa. While that talk continues, we are busy rolling up our sleeves building a black women-owned cooperative bank.
BDM: What is your take on the recent changes in the banking space?
DMT: Barclays plc recently announced that it plans to reduce and eventually liquidate its 62% ownership of Barclays Africa, which locally trades as ABSA. Similarly, Old Mutual has announced that it plans to reduce its ownership in Nedbank. This presents many future opportunities for the stated objective of establishing a black-owned bank. Whether a black-led consortium will emerge to invest in Barclays Africa/ABSA remains to be seen.
Imagine a time in the future when YWBN Cooperative Bank would have grown to a point that we would be considered a serious contender to participate in such investment opportunities in a local commercial bank or set up one from scratch. YWBN Commercial Bank has a nice ring to it….
While Barclays plc is making an exit from Africa, it is interesting to read in the Business Times editions of 22 March 2016 and 27 March 2016 that Japanese investment powerhouse, Nomura has decided to set up shop in South Africa, opening a permanent branch in Cape Town that will open on 4 April 2016. Nomura will provide a range of tailored investment banking and risk solutions. In explaining their decision, Nomura said in a statement that ‘South Africa is a key economic investment hub on the African continent and global investors and corporates are increasing investment in the region.’ The local co-head of Nomura in South Africa, Ben Lowther says Nomura is unperturbed by the prospect of South Africa rating downgrade because they are guided by the Japanese philosophy of taking a long term view on matters.
BDM: Have you looked at how some of the successful commercial banks were established?
DMT: We have looked at the case study of how Paul Harris and two friends built FirstRand from R 10 000 in 1977 into a company worth R 21.25 billion in 2015.
According to the February 2016 edition of Forbes Africa, G T Ferreira, Laurie Dieppenaar and Pat Goss started Rand Consolidated Investments (RCI) in 1977 with $ 10 000 or R 10 000 ( hard to believe that in 1977 $ 1 = R1) and a secretary. When Pat Goss left the company, Paul Harris was asked to join. Their first break came four years later in 1981 when they made a R 657 000 profit after tax. In 1983 they bought Rand Merchant Bank from Johann Rupert and acquired a banking license as a result. In 1985 they formed Rand Merchant Bank Holdings (RMBH). Three years later, in 1988 they made R13 million profit. In 1993 they acquired Momentum and listed on Johannesburg Stock Exchange (JSE) as RMBH. In the same year Discovery Health was formed. In 1998 they formed FirstRand and acquired First National Bank (FNB) from Anglo American. Incredibly, it took them only two days to raise R 5 billion in order to acquire SOUTHERN LIFE and OUTsurance. By 1999 FirstRand was worth R 2.1 billion and worth R 2.93 billion in 2000. Expansion followed in 2003 when the company bought Swabou in Namibia; established FNB in Lesotho in 2004 when they were worth R 6.11 billion; and acquired a majority shareholding in Banco Desenvolvimento e Commercio in Mozambique in 2007 by which time they were worth R 11.31 billion.
This fairy tale ride from capital of R 10 000 in 1977 to being valued at R 11.31 billion in 2007 was shaken by the global financial crisis of 2008 when the bank lost R 1.4 billion in assets abroad. Paul Harris talks of how on one particular day FirstRand was worth more than the US-based Citibank in terms of market capitalisation. He says that brought home to him the realisation that if that could happen to Citibank that it could happen to local banks. That therefore called for drastic measures to be taken to weather the storm, which they did relatively well, compared to their competitors.
From 2009 they started building again from a base of R 7.2 billion, expanding by establishing FNB in Zambia and FirstRand in India. In 2010, then worth R 9.96 billion they unbundled shareholding in Momentum and OUTsurance. FirstRand was worth R 10.11 billion in 2011. The biggest growth followed from R 12.73 in 2012; to R 15.42 billion in 2013; to R 18.66 in 2014 and R 21.25 billion.
A much younger bank, Capitec Bank, was started with start-up capital of R 250 million and an executive team from the now defunct Boland Bank. The 27 March 2016 edition of Business Times says Capitec received its banking license in 2001; listed on the JSE in 2002; started taking deposits in 2003; and developed its transactional website in 2007. The business model has seen the bank achieve a growth rate of 20% per annum by poaching clients from the big four banks through low banking fees. In November 2015 the ratings agency, Standard and Poor said Capitec has a positive outlook. The share price was R 573 in February 2016, compared to FirstRand at R 46; Standard Bank at R 130; and Barclays Africa Group at R 116.
BDM: Has YWBN CFI looked at other forms of banking to see how to innovate?
DMT: YWBN CFI/Co-operative Bank plans to contribute to the growth of the co-operative banking sector in South Africa; we are therefore studying diverse forms of banking to see how we could innovate. One example is the Women’s Development Bank (WDB) Trust, which does developmental micro finance in the form of providing productive loans to those previously considered ‘un-bankable’ namely poor rural women, using social collateral. The South African Reserve Bank does not allow WDB Trust to use the name ‘bank’ in its name because it does not have a banking license, hence the use of the acronym WDB and/or also using the name Women’s Development Businesses. That has however not stopped WDB from innovating. In 1996 WDB Trust established a private investment company, WDB Investment Holdings, to raise revenue for the WDB Trust. WDB has pioneered the developmental micro finance sector in South Africa and weathered many storms to celebrate 25 years of its existence in 2016.
Another example is Kagiso Trust, whose investment company, Kagiso Trust Investments merged with the Tiso Group to form Kagiso Tiso Holdings on 1 July 2011. KTH is now worth R 8 Billion in net asset value and has gross assets of R 13 billion. Kagiso Trust owns 31.1% of KTH and 1.6% of FirstRand Limited. Kagiso Trust is celebrating 30 years of its existence in 2016.
FirstRand was one of the very first investors in WDB Investment Holdings, Kagiso Trust Investments and Mineworkers Investment Company through the 6.5 Broad Based BEE share deal in 2005. The FirstRand Empowerment Trust deal matured in 2015, thereby creating value of R 23 billion for the participants.
The very highly regarded CEO of FirstRand, Mr Sizwe Nxasana stepped down in September 2015 after 9 years at the helm. His successor, Mr Johan Burger, recently congratulated WDB Trust and Kagiso Trust on their 25 and 30 years of existence respectively. He said the banking sector needs to contribute to socio-economic development. He said the NGO sector can play a role in providing funding to the parts of the economy that are too profitable to qualify for government support but not profitable enough to qualify for finance on commercial terms. One of the objectives that drive YWBN CFI/Co-operative Bank is to ensure that our members, many of whom are budding entrepreneurs, are able to participate in the mainstream economy.
We are a new player in this space. That being said, we are soldiering on, building YWBN CFI, then YWBN Co-operative Bank, then…
See: www.ywbn.co.za/cfi you can reach YWBN CFI at: firstname.lastname@example.org