ADDRESS TO THE NATIONAL SUMMIT ON THE FINANCIAL SECTOR HOSTED BY NEDLAC

Transform and Diversify the Financial Sector With and For the Workers and the Poor

By Blade Nzimande
Chairperson Financial Sector Campaign Forum
20 August 2002, CSIR Conference Centre, Pretoria

Transform and Diversify the Financial Sector With and For the Workers and the Poor

Chairperson, Minister of Finance, COSATU General Secretary, delegates from the community sector, leaders from the business constituency, comrades and friends, as the Financial Sector Campaign Forum, we are proud and honoured to address this National Summit on the Financial Sector on behalf of the Community Constituency of NEDLAC.

The fact that we are holding this Summit, on the eve of the World Summit onSustainable Development, shows the resolve of our people to ensurefundamental transformation and diversification of the financial sector inour country and that nothing will stand in our way to build an economy basedon the people.

We are also proud that this Summit is a direct outcome of the Red OctoberCampaign launched in October 2000. The Campaign has been embraced by allsections of South African society black and white people, poor people,workers, small businesses, women, churches, co-operatives, stokvels, tradeunions, savings clubs, and so on. It is a campaign that has truly capturedthe imagination of our people and talks directly to the struggles againstpoverty and for sustainable livelihoods. We therefore thank the thousands ofworkers and the poor and their organisations which directly took part inthis Campaign. As a result of your activities, within 20 months we now seetangible results through the holding of this Summit. What you have taught usis that together united and led by the workers and the poor we can changeour society for a better future.

This campaign has highlighted the extent to which the existing financialsystem is manifestly failing either to contribute to promoting developmentorientated growth, or even to providing basic financial services to themajority of our people.

1. WHAT MOTIVATED THE CAMPAIGN?

The existing formal banking and financial system in our country emerged under colonialism and apartheid to serve the needs of conglomerate capital (with which it was closely connected) and secondarily to provide personal banking services to higher income (mainly white) individuals. The majority of working people and the poor were marginalised from this system, although alternative institutions like stokvels developed among our people. Regulation of the financial sector by government was largely prudential regulation aimed at guaranteeing the integrity of an essentially apartheid free market system and protecting investor funds.

Since 1994, we have witnessed numerous engagements between Government,communities and the banks seeking to draw the banks into making acontribution to urgently needed transformation in our country. Theseengagements have particularly focused on the provision of affordable financeto low cost housing, making loan capital available to SMMEs and communityventures, and providing affordable basic banking services to our people.Despite these efforts, we have witnessed and experienced the following:

• A contraction of banking services to the workers and the poor
• Higher charges imposed on banking services and premiums provided to thoseable to access them
• No significant improvement in the involvement of the banks, insurancecompanies, pension and provident funds in the provision of finance for lowcost housing, rural finance, SMME development, etc
• The continued red lining of areas in which black working people live,albeit in a more concealed form than in the past
• An increase in the number of consumers blacklisted by the Credit Bureaus+ADs-
• An increase in the utilisation of micro-lenders by our people and therebytheir exploitation by micro-lenders
• Unabated discrimination in the entire financial sector based on race,gender, socio-economic status and HIV/AIDS
• An ambience in which many black people are made to feel that their customis not welcome through the consumer unfriendly policies and proceduresfollowed in the entire financial sector

With regard to the issues raised above, in October 2000, the Minister ofHousing, Minister Sankie Mthembi-Mahanyele observed that:

Government is running out of patience with the bank's reluctance. In termsof the record of understanding signed several years ago between banks andgovernment, banks agreed to deliver 50 000 loans a year to poor communities.Banks have not met this target and their lending patterns show that loans tolower income areas are declining.

We are convinced that neither market forces, nor appeals to the good willof the financial sector, will fundamentally alter this pattern. Rather, inour view, a major state-led project is needed to transform the financialarchitecture of the country in ways that will make the sector moresupportive of development orientated growth. This NEDLAC Summit needs tolay the foundations for such a transformation.

In fact, we are of the view that a broad-based programme needs to beconsolidated and cohere around building an economy which puts the needs andinterests of the workers and the poor at its epicentre in order to advancefundamental transformation in our country.

This kind of economy should seek, in the first instance, to transform, growand develop our economy in a manner which builds and strengthens the socialand public sectors in our economy. Such an approach places the eradicationof poverty at the centre of economic restructuring+ADs- strengthening the roleof the state in directing major economic resources towards meeting the basicneeds of our people+ADs- challenging the dominance of the free market in theallocation of resources+ADs- disciplining and directing private capital toinvest in job creation, poverty eradication, infrastructure development andthe meeting of basic needs+ADs- and much more importantly harnessing theenergies of the workers and the poor towards economic transformation.

In our view, the key challenge facing South Africa is the development of acoherent economic policy to drive a developmental path aimed at job creationand the eradication of poverty based on the mobilisation, in the firstplace, of domestic capital resources (including public, parastatal, socialand private domestic capital) around a coherent growth and developmentstrategy.

As part of this integrated strategy we need a far-reaching restructuring anddiversification of the financial sector with a particular focus ontransforming existing banks, creating co-operative banking, strengtheningpublic sector financial institutions, and mobilising worker's provident andpension funds, the creation of a credit regime orientated towards ourdevelopmental objectives, and the need to halt the massive dis-investmentflow spearheaded by major corporations.

2. WHAT HAS BEEN ACHIEVED THUS FAR?

Since the financial sector campaign was launched, the financial sector has not substantially changed yet. Various banks have increased their bank charges particularly hitting hard at those who earn less than R3000 per month, pensioner and other recipients of state social security grants. The last three annual reports of the Independent Banking Adjudicator released his reaffirms consumer problems with banks and criticises banks for some of their practices. HIV/AIDS orphans have been evicted by financial institutions. Hundreds of cases of HIV/AIDS based discrimination in the entire financial sector are reported yearly. And the ongoing deep problems of skewed investment, redlining, racism, lack of popular ownership and control of the financial sector, lack of democratic investment decisions by pension and provident funds and many more fundamental problems continue unabated.

On the positive side, both the 2000 State of the Nation Address and the 2000Budget speech important announcements were made on the financial sectorincluding government plans to ensure that banks pay just taxes.

Since the Campaign was launched in October 2000, we have also seen thepassing of the Homeloans and Mortgages Disclosure Act, 2001 forcing thebanks to disclose their lending patterns on the homeloan front. We furtherwelcome the publication of the Community Reinvestment Bill aimed at, amongstother things, outlawing redlining and forcing the banks to lend in low-costhousing. We would, however, like to see this bill being strengthened toensure that redlining becomes completely illegal. In addition, sooner ratherthan later, legislation must cover credit and investment patterns of banks,insurance companies, pension and provident funds beyond just housing, toinclude lending to SMMEs, including co-operatives, prescribed assets, etc..

Despite delays in negotiations, the Financial Sector Campaign Forum is alsopleased that there is substantial agreement on the following areas:

• Policy and Legislative Framework on Co-operative Banks in our view thisinclude the review of the (Big Four) Banks Act
• Support for Co-operative Banks and Non-profit micro-lenders
• State Regulation of Credit Bureaux towards developmental objectives and away from a punitive paradigm
• Lifeline Banking Services
• Capital Markets and Investments including prescribed assets
• Community Reinvestment with sufficient scope and enforceability
• Ending of discrimination in the financial sector including redlining
• The need to Review and Democratise the Regulatory Framework governing theFinancial Sector
• Domestic Savings Initiatives
• The Consolidation and Strengthening of Public Financial Institutions(state-owned)

These agreements must be buttressed by a clear agreement on investment. Wealso welcome the commitment by the Life Officers Association to provideautomatic HIV/AIDS cover.

We call on government to ensure that the restructuring of Postbank leads toa stronger and state-owned Postbank which, amongst other things, will beresponsible for the payment of state social security grants.

3. THE WAY FORWARD

Having taken this substantial time to analyse and report, we now pose some issues for the way forward in order to ensure that this Summit is not a mere talkshop.

The first step is to agree to a timeframe and monitoring mechanism for theimplementation of the Summit agreements. First and foremost this meansdealing decisively with credit bureau regulation and the elimination ofdiscrimination in the financial sector through the speedy and smoothenforcement of existing legislation and industry policy tools to address thelack of administrative justice racism (overt and covert)and all otherforms of unfair discrimination. The levels of indebtedness of the workersand the poor are unacceptable. Therefore, we need swift, decisive and urgentaction to deal with the micro-lending crisis.

One of the most crucial platforms through which we will deepen the campaignis that of mobilising the workers and the poor to take up the question ofthe management and investment of its own provident and pension funds. Wewant these funds to have returns, but we also want them to invest in areasthat will create jobs and develop our communities. We want to ensure thatworkers have a meaningful say in and control over the management of thesemonies, both in the public and private sectors. As things stand now, workershave no say about how and where these monies are invested. This must come toan end.

Related to this is building co-operatives and co-operative banks in order totrigger the legislative process and to build the momentum of our people toeffectively transform the financial sector. This must be energetically takenforward.

The question of ownership and the racial and gender profile of the financialsector is also going to be a major focus of the Financial Sector CampaignForum in the coming period.

The outcomes of the Summit must also be taken forward to the Growth andDevelopment Summit.

In conclusion, we thank government, labour and various communities for theirpositive responses and constructive engagements in preparing for thisSummit. We also wish to thank the business constituency which, despiteinitial reluctance over a NEDLAC Summit and other disagreements, realisedthat there is no other route to economic growth and development but toengage meaningfully with the workers and the poor of our country.

Let us co-operatively and strongly move forward to a transformed and diversified financial sector.