Friday, 21 May 2021

Why is the ill-equipped Postbank being punted as a state bank when Ithala is the obvious choice?

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Why is the ill-equipped Postbank being punted as a state bank when Ithala is the obvious choice?

Going into the Post Office has become a chore many avoid if they can, because of the plethora of people who are in the queue through no fault of their own. This makes one wonder – why would an institution, related to one that has such a demonstrable difficulty in handling everyday social needs of people, be entrusted with being a state bank?

The South African government has announced that it is looking at Postbank being remodelled into the long-envisaged state bank.

We must point out early on that the Postbank is not the Post Office. The bank is, however, owned and overseen by the South African Post Office. In 2019, the Department of Communications and Digital Technologies announced the establishment of the South African Postbank Company, which was gazetted to take over the business of Postbank from the Post Office effective 1 April 2019. In the same year, Parliament adopted the Financial Matters Amendment Bill to pave the way for Postbank to get a banking licence from the SA Reserve Bank. This is commendable on its own. However, we have to ask some difficult questions about the “holding” company’s capabilities to deliver on a mass scale, as would be expected of a state bank.

One does not need to be a banking expert to see that Postbank does not have the necessary technological infrastructure and capability to operate as a transactional bank. If they did, these would have been made available or the knowledge shared with the Post Office to avoid these humiliating scenes we see around post offices every day, and they would be the vehicle through which the government delivers social services to the people.

In this regard, the Post Office’s record in handling financial transactions does matter. If they cannot rely on their experience with the Postbank, how can such an organisation be trusted with managing more and potentially complex transactions in a fast-changing and competitive financial sector?

While this might sound or read like a putdown of the Post Office, the reality is that the state cannot afford to be sentimental about services they say they intend extending to the poorest and most marginalised.

Far too many South Africans, especially those in the rural areas and small towns off the beaten track, continue to be excluded from modern financial services and the economy in general.

The solution is a state-owned bank with a developmental mandate that will rescue them from the clutches of the ruthless and criminally exorbitant money lenders, the inglorious mashonisas, while extending banking services to the unbanked communities.

Whatever one might make of the buzzword that is Radical Economic Transformation, this will be meaningless if the majority of South Africans who live on the margins of society and in those derisively called “one-horse towns” remain excluded from banking services. If Postbank had the capability of doing this, it would have already done so. It will have to almost reinvent itself and capacitate itself beyond recognition for it to do what it needs to do to be a state bank

.To underscore how far backwards it is, the bank would even have to start procuring and placing automatic teller machines if it were to be chosen as the state bank.

Again, it is unfair to expect the unbanked and the poor to wait for what are usually long and onerous state processes of establishing a bank. State processes are notoriously slow. Even procuring stationery can be a marathon, so starting a bank from scratch would be like climbing Mount Everest. It would also be expensive in a country that has many pressing needs for cash.

Instead of spending money trying to fix the gaping gaps in the current Postbank, it would be a lot better if the state used institutions that currently exist and already provide the type of services the envisaged state bank would.

This would also apply if, as has been suggested elsewhere, the state would buy African Bank. In fact, this would be tantamount to rescuing a struggling commercial bank which, in its current guise, is without any track record of servicing those envisaged by a state bank. To put it in simple terms, why spend money and other scarce resources reinventing the wheel?

What then is the equivalent of the wheel in this context?

While working in KwaZulu-Natal (in Maritzburg and later Durban), I was pleasantly surprised to learn of the existence of Ithala Bank.

At first I thought it was one of the financial services organisations formed in the wake of the first BEE companies of the post-apartheid era, only to find that the bank had existed for about 50 years (at the time) and now has been going for about six decades.

While there might be many contenders, it is difficult to see how any of the existing options would be better than Ithala Bank, which currently operates mostly in KZN. As an entity 100% owned by the Ithala Development Finance Corporation – a provincial development agency under the economic development and environmental affairs department – Ithala is already a state bank.

As the only state-owned entity that provides full banking services, the concept of a state bank is a natural progressive step for Ithala. After 60 years of banking those regarded by existing commercial banks as “unbankable” and extending banking services including loans and financial advice to those in the rural areas of KZN, it is hard to see why the government would overlook an institution like Ithala and choose one that lags far behind in providing the same services. If the overarching mandate of a state bank is to help build an inclusive economy and partner with government in delivering services to the people, then Ithala (and perhaps others like it in other parts of the country, if they exist) has a proven track record in this regard.

It is not insignificant that Ithala already provides full banking and insurance services to its clients and is fully regulated by the Reserve Bank and other regulators.The worst that could happen here is that the people of KZN would lose their entitlement to call Ithala “their” bank.

On the upside, they could get to see “their” bank making a significant contribution to the national endeavour of pushing back against poverty and extending banking to those previously excluded, and being a catalyst for building the envisaged inclusive economy where all South Africans become active participants and beneficiaries of the economy.