Ask not what you can do for the FSC (an unsponsored post)

Last year I was talking at a conference and one of my co-presenters was the mighty jungle - I did mention this in a post before. Besides being particularly unimpressed with the intrepid orator I was marginally intrigued at his suggestion that the codes would cover all aspects of empowerment. "Name me one charter that the codes can't cover," our hero exclaimed.  I immediately wanted to suggest the FSC, but held my tongue because I didn't know too much about it at the time.  Well seeing that I co-wrote the FSC's annual report, I think I might be a little more qualified to talk about it.

The FSC is outdated but it had been updated in a draft (affectionately known as the Kevin Lester draft) and it had been modified to include the codes' targets.  In fact whilst drafting the annual report I made reference to the anticipated changes we could expent once the charter had been gazetted.  All the elements had been updated to closely resemble the codes, however there are two elements within the FSC that the codes CANNOT cover.  These are Empowerment Financing and Access to Financial Services.  Some might argue that they can be included in SED or ED but you have to understand that these large financial instutions (some of whom I call clients) have very established ED and SED programmes in place already that will generate the requisite 20 points for both elements. 

What have the Romans given us in return? (I wanted to embed this link - but it would detract from my story)

To get an idea of how these two elements have made a positive impact on South Africa you need look no further than the success of Mzansi accounts. A recent article in the Mail & Guardian caught my attention.

Research by FinMark Trust shows that, of the 4.33-million accounts opened since 2004, over 3-million accounts remain active. As a result Mzansi has increased the percentage of banked South Africans from 45% to 63%. Of the 72% of people who had never had a bank account before, 7% of them have migrated upwardly into the mass market products of the individual banks. That equates to about 400 000 people the banks would not have tapped for their own bank accounts without the Mzansi initiative.

Most interestingly the story notes

One could argue that, for the first two years, Mzansi was a grudge project whose main aim was to tick a box in the Financial Services Charter.

The moral of the story?  No FSC - no Mzansi. Sure they are making money from it, but that's the whole point.

And then Citi Bank.  One of the measurements under Access to Financial Services is Low income housing loans.  I happened upon this article the other day.  International Housing Solutions has received a R150million investment from Citi Bank. 

Donna Oosthuyse of Citi says the funding is for equity financing in South African projects in areas where gaps or backlogs in economic development and job creation have not been adequately addressed by financial institutions and is part of the group’s commitment to empowerment in South Africa.

“By joining hands with IHS we can assist in various roles of financier, advisor, partner, implementer and integrator and help mobilise finance and expertise for development projects that are aligned with the intent of the Financial Sector Charter.”

That FSC phrase again.

So jungle and those other dissenters - I put it to you, can we actually cope without the FSC?

Now what is the problem? (and I am patently on the side of the banks etc) 

Comes down to ownership.  Isn't it amazing (and oh so very typical)  that something that can actually make a difference has to be pulled down by those stakeholders who stand to benefit the most from it.  Reminds me of XTC's Peter Pumpkinhead. 

The issue here is direct ownership,  the FSC calls for 10% and the codes want 15%.  The reason why the FSC limited it to 10% is because of the Banks Act most specifically section 37.  I'm not going to summarise it but you can find it on pages 36-8.  The FM gave us a good summary of section 37

Section 37 of the Banks Act was designed to ensure the sustainability of SA's banks through the regulation of anchor investors in banking institutions. Any entity which seeks to acquire a minimum of 15% of an SA bank has to be vetted by the registrar of banks, a division of the SA Reserve Bank. Such investors become shareholders of reference and need healthy balance sheets to back up the banks in times of trouble.

The truth is that this direct ownership can be made up of a series of shareholders each holding a stake of less than 15% - but there isn't any money going around for these shareholders and the whole deal-system is in the shit.   Maybe that's the solution - by the time it takes these minority investors to get the money together to actually take a stake in a bank BEE might have run its course - so does it really matter what the target is?