South Africa’s ambition to jumpstart its cooperative banking sector by modernising the sector’s systems of operation seems to have hit a snag of a regulatory, technical and structural nature.
South Africa has been looking to uplift the stature of its 30 or so cooperative banks through a programme that will see them enter the National Payment System. The programme could see the many stokvel like operations being able to issue banking cards to members which can be used on ATM’s across the country. This will make for a significant achievement in the course to transform the country’s banking industry and financial inclusion.
The programme is driven by the Cooperative Banks Development Agency (CBDA). The suggestion that the CBDA has hit a snag on this programme can be gleaned from the agency’s 2016/17 annual report. This will be disappointing to the many financial cooperatives bubbling under with a hope of bursting onto the mainstream by plugging into the National Payment System.
The CBDA launched the programme to migrate the country’s cooperative banks onto the National Payment System in 2015. It set out, back then, to establishing a Central Support Service (CSS) for the cooperative banking sector under its wing. The CSS would be positioned like a back office support for Cooperative Financial Institutions (CFIs). The idea was to assist CFIs to clean their houses so that they can be able to adopt a proper banking system provided by the CSS.
The CSS was among other things designed to assist CFI’s to engage a system that allowed them to produce with ease different financial reports that are essential for a banking operation. Once on-boarded onto the CSS, the CFI’s would then easily slide onto the National Payment System.
That is not happening. The CBDA is still struggling to on-board CFI’s onto the CSS. The agency notes that “The on boarding of CFIs proved to be a complex exercise for a host of reasons.”
Only seven CFIs managed to on-board during the 2016/17 financial year. These are Boikago, Young Women in Business Network, Motswedi, Nehawu, Kuvhanganyani and Imvelo.
Three more CFI’s are set to enter at the end of the 2017/2018 financial year.
The idea was that CFI’s that successfully navigate the CSS and in particular the banking chapter should slide into the National Payment System. But the CBDA needs a mainstream banking partner to insert the CFIs onto the National Payment System. And the CBDA says “Completion of the contract and identification of a suitable banking partner has been elusive. This has been driven in the main by more onerous requirements on banks to be compliant in terms of anti-money laundering regulations as well as the FICA requirements.” This suggests that CFIs that are candidates form the National Payment System are yet to internalise systems that are robust enough to make a partnering bank comfortable.
The CBDA does state that “CFIs operational efficiency was not conducive to manage transactional accounts, in order to be on boarded effectively on the National Payment System.”
This was always going to be a tricky affair. The banking platform within the CSS is tough in itself in demanding compliance with the rigorous requirements of the Payments Association of South Africa (PASA), Payment Card Industry (PCI), the payments system operators like Bankserv and other regulatory institutions.
The project to insert the cooperative banking sector is critical to the country’s ambition to transform the financial services sector. As things stand the sector seems to be stuck despite the benefit of fishing from a robust stokvel, informal financial cooperatives world. But there are operations bubbling under like the KCB which seeks to become Khanya Cooperative Bank.