According to a survey carried out by FinScope Africa in 2006, 49% of the South African adult population does not have access to banking services. The Co-operative Banks Act, 2007 (the Act) seeks to redress this divide between the so-called 'banked' and 'un-banked' by providing a sound legislative framework within which co-operative banks can provide financial services.
Inadequacy of Banks Act exemptions
In the past, financial services co-operatives, credit unions and village banks provided financial services under the exemptions in the Banks Act No. 94, 1990 (the Banks Act). The Banks Act generally prohibits persons without a banking licence from engaging in the 'business of a bank'. The Banks Act defines the business of a bank as including deposit-taking. Other than these exemptions, there has been no sector-specific legislation regulating these institutions and member deposits were inadequately protected.
Historical context and legislative process
The Act is the product of extensive discussion by the National Economic Development and Labour Council (NEDLAC) constituencies culminating in the financial sector summit agreements being signed by the NEDLAC in 2002. The Act came into effect on 1 August 2008.
A brief overview
The Act defines a co-operative bank as a co-operative registered under the Co-operatives Act, 2005 and as a co-operative bank in terms of the Act, whose members -
- are of similar occupation or profession or employed by the same employer or employed within the same business district; or
- have common membership in an association or organisation; or
- reside within the same defined community or geographical area.
It applies to any co-operative bank registered as such in terms of the Act, but also applies automatically to any co-operative, registered as such under the Co-operatives Act, which takes deposits (in terms of the Banks Act Exemption), and
(i) has 200 members or more; and
(ii) holds deposits of such members in excess of R1 million.
Those co-operatives that automatically fall within the application of the Act by meeting these criteria, must, within two months of meeting the criteria referred to in (i) and (ii) above, apply for registration as a co-operative bank in accordance with the provisions of the Act. The Act further provides that any co-operative to which the Banks Act Exemption applies, and that meets the abovementioned criteria, must apply for registration within one year of the commencement of the Act.
The Act provides for the registration of four types of co-operative banks -
- primary savings co-operative banks;
- primary savings and loans co-operative banks;
- secondary co-operative banks; and
- tertiary co-operative banks.
Primary savings co-operative banks are restricted to providing basic financial services to its members, including opening savings accounts, soliciting and accepting deposits and investing such deposits, and providing trust or custody services.
Primary savings and loans co-operative banks have similar powers and functions to the primary savings co-operative banks, but primary savings and loans co-operative banks have the additional power to grant secured and unsecured loans to its members to a maximum aggregate value. Furthermore, these banks are authorised to conduct additional banking services and investments as may be prescribed by the Minister of Finance (the Minister).
Secondary co-operative banks may provide the same services as those services offered by primary savings and loans co-operative banks but can also trade in financial instruments on behalf of members and open an account with a bank registered under the Banks Act to facilitate foreign currency transactions.
Tertiary co-operative banks may provide services similar to those of the other forms of co-operative banks but may also conduct any additional banking services and invest money deposited with it in any investments prescribed by the Minister.
Supervision of co-operative banks
The Act provides for the Reserve Bank to appoint a suitable person to serve as the supervisor of primary co-operative banks with deposits in excess of R20 million, as well as secondary and tertiary co-operative banks. Subject to the approval of the Minister, the Development Agency is required to appoint a suitable supervisor of primary co-operative banks with deposits less than R20 million.
Deon Govender and Mike McLaren