The Co-operative Banks Development Agency (CBDA) could land a broader and bigger role if the ambitions expressed in the Micro-Insurance Regulatory Framework are anything to go by and if the thought survives the Twin Peak regulatory approach.
The framework speaks of a potential to pull up as many as possible of formal and informal financial institutions, like stokvels or burial societies, into a lightly regulated micro-insurance sector.
There will be concerns that increasing the CBDA burden is a bad idea as the institution is struggling in its role of guiding the development of the cooperative banks sector. The CBDA runs on a tiny R16m per year budget, a grant from National Treasury.
On the other hand the thought will be seen as an exciting prospect which envisages democratisation of the financial sector via pulling up grassroots financial organs. It stands in stark opposition to the overemphasis of wanting to pressure or push down established financial institutions as reflected in the Financial Sector (Transformation) Charter. In their reluctance to serve the low income communities the established financial institutions end up exploiting poor people. This top down path also robs the marginalised communities of real empowerment, an opportunity to run their own financial institutions.
The CBDA, which is currently focused on promoting and regulating cooperative financial institutions (CFIs), was earmarked to extend its wings and cover the micro-insurance sector as envisaged under the concerned framework.
Published in 2011 the Micro-Insurance Regulatory Framework has been frozen until this month when the Draft Insurance Laws Bill was published for public comment. The Bill refers to the Micro-Insurance Regulatory Framework for guidance in dealing with the micro-insurance sector.
However the Micro-Insurance Regulatory Framework is set to change largely as a result of the path towards the Twin Peak regulatory model. This model splits financial sector regulation into two parts: There is the Reserve Bank looking over prudential matters and the Financial Services Board (FSB) looking after market practices which largely relates to the ‘Treating the Customer Fairly’ principle. The question is will these developments render as useless the role of the CBDA.
Coming to actualise the Twin Peak regulatory principle, the Draft Insurance Laws Bill is designed to close insurance sector regulatory gaps as realised in the post 2007/08 global financial crisis while also pursuing the ambition of democratising the sector, via the Micro-Insurance Regulatory Framework.
The framework is infused with a principle that wants to harness South Africa’s grassroots financial clubs, like stokvels, to become mainstream financial players. This path wants to guide as many stokvels or burial societies as possible into mainstream financial affairs via the cooperative path.
The idea is to channel Stokvels into the formalised path which can address South Africa’s savings gap. Currently the path looks like this: Stokvel to CFI to Cooperative Bank. The Micro-Insurance Regulatory Framework envisages the guidance of stokvels or burial societies into formal micro-insurance players.
The framework notes that business and operational support functions of the micro-insurance sector will fall outside the ambit of the Financial Services Board. “The extent of support and who should provide it is under review. At this stage it is proposed that the mandate of the Co-operative Banks Development Agency, as provided for in the Co-operative Banks Act of 2007, be extended to allow for it to provide operational support to micro-insurers in addition to Co-operative Banks.”
The document adds that “Should it be agreed that the Co-operative Banks Development Agency will assist fledgling micro-insurers with their operational requirements, the Cooperative Banks Act will need to be amended to accommodate this broadening of the agency’s mandate.”
Whichever way it finally develops, this thought will come with sweeping changes for the vast world of stokvels, burial societies, friendly societies and funeral parlours who are positioned like insurers.
The Micro-Insurance Regulatory Framework speaks of a need to pull unregulated players into the formal net to protect the consumers while also acting cautiously not to stifle the sector via lighter than normal regulatory hurdles.