News that BrownSense, a 100 000 strong Facebook group propagating black business solidarity in South Africa, is preparing to launch a banking type operation, has caused considerable excitement across the country. It comes with a promise to fund black small to medium sized enterprises (SMEs) and to amass more than R1 billion in capital over the next five years from members.
The initiative comes across as one of those that belong in to the human economy movement which has spurred marginalised groups across the globe to create innovative and community focused breakaways from the mainstream economic activity. Such activity includes community currencies seen in the slums of Kenya, batter systems seen in Zimbabwe’s informal economies and crypto currencies like Bitcoin.
We caught up with BrownSense founder Mzuzukile Soni to answer pertinent questions about the operation.
What legal form will BrowSense Stokfel take when it gets off the ground? Will it start as an informal stokvel or a cooperative financial institution, a cooperative bank, a private equity fund or something else?
The entity is an informal stokvel that purchases assets on The People’s Fund. The proceeds of these will be used, proportional to each persons’ contribution to register a cooperative bank.
Each person will have one vote regardless of share ownership. It will work pretty much the same way as a mutual bank. Then the owners can extract value from it by financing their businesses etc in the first phase.
As we walk the journey of regulation post this period we will begin the process of applying for a full banking license which will primarily cater to the needs of our people.
Under which regulatory financial regime will this entity fall into?
Given that our first point of departure is an informal stokvel, the operation will fall under the ‘Exemption of burial societies and stokvels’ as defined within FAIS Act. Having the short term and long term deposit FSP license, StokFella is well position to assist us on this journey via administrative services, the required transparency and advisory offering.
Understanding the enormous potential and the desires of the people seeking a Brownie Bank, we hope to quickly move into the Co-operative Bank Act space. Which by then StokFella will begin to align its systems to the National Credit Act to make certain Brownies can easily and digitally receive regulated and extremely affordable credit for their businesses based on their BrownSense group contribution behaviour.
What informs the estimate of 20% average return on investment?
The People’s Fund will focus on growth businesses, which tend to offer 30% to 50% year on year return to an institutional investor. What we have done is offer this to the average everyday person. For example, the projected return for the Beer taps is 29.5%. The Beehives is 16.5%.
We have more campaigns coming up and the threshold for offering a business on the platform is that it must, based on its historical records and future projections, be able to offer at least 15% year on year return to the people who buy assets from it.