STARTING a co-operative bank is “very simple and very easy” for those who are seeking alternative banking facilities to dominant major banks, said Jason Riley, founding chief executive officer of the Johannesburg-based GIG Co Operative Bank.
However, Riley, a bank specialist who often conducts workshops on co-operative banks, has warned that running the bank could be very expensive as operational expenses could easily run into millions of rand.
To start the bank, one must have community members with a sound bond and must be committed to starting it.
“From there, there are lots of regulations, compliances, and costly bank software and you have to be very clear on why you want to start a bank,” said Riley.
Currently, the country has 41 banks of which 14 are local commercial banks, 13 foreign banks, four foreign-controlled local banks, three mutual banks, and a number of co-operative banks.
None of the co-operative banks are affiliated to the Banking Association of South Africa.
The government already has the Co-operative Banks Development Agency (CBDA) to encourage communities to develop their co-operative banks, with the hope of contributing to the national development plan by giving 90% of the population access to banks by 2030.
The strategy of the CBDA is to drive the co-operative banking sector’s growth and sustainability, contributing towards a transformed financial services sector in terms of ownership, meaningful participation in the mainstream banking sector, access to finance by small, micro and medium enterprises (SMMEs) and financial inclusion to the undeserved communities, through the provision of accessible, reliable and simplified co-operative retail banking services.
The cost of starting the bank from scratch would be as cheap as R100 000 and 200 committed members.
“Then to set up all your structures, your system, and banking software, depending on what you want to do, can easily make you run into expenses between R1 million and R2 million.
“Consultation and banking software is very expensive,” said Riley.
He said co-operative banks were important as they were different from commercial banks.
“You only do co-operative banks if you seriously want to design your own financial product and your own economy within a group of people.
“You just have to understand the difference between the Banks Act – the one that regulates the commercial banks – and another one regulating the co-operative banks,” he said.
Riley said co-operative banks should not make money for themselves but should empower community members and help them out of debt “and teach them business”.
“Our intention is not to make money for the bank but to make money for the members,” he said.
Riley’s workshop on co-operative banks appears on YouTube.
Currently, there are a few known co-operative banks, including GIG, Ditsobotla Primary Savings and Credit Co-operative Bank, KSK Koöperatiewe Bank Beperk, OSK Koöperatiewe Bank Beperk, Webbers Employees Savings and Credit Co-operative Bank, and Ziphakamise Savings and Credit Co-operative Bank.
According to the CBDA Annual Performance Plan 2023/24 released in January this year, the agency is focused on expanding the footprint of sustainable, professionalised, modernised, and technology-enabled co-operative banking institutions (CBIs), thereby growing the co-operative banking institutions (CBIs) sector membership base, member deposits and assets.
While she was the minister of co-operative governance and traditional affairs, Women, Youth and People with Disabilities Minister Nkosazana Dlamini Zuma last year expressed the need for co-operative banking.
Dlamini Zuma had called on the country to prioritise establishing municipal, co-operative and community banks, saying this would support local aspirations and ensure that income circulates within the communities.
“This will require a radical transformation of our financial services sector which is essentially geared to supporting a privileged few to the exclusion of women, Africans, and young people,” said Dlamini Zuma.
During the BRICS Youth Summit held in Durban on July 18, Dlamini Zuma expressed the hope that the 15th annual BRICS Summit to be held this month will consider the establishment of “alternative banking and financing architecture for the global south”.
“We currently have a structural problem of a banking industry that is not only greatly concentrated and monopolised, but also in many ways does not serve our interests,” she said.