A bank for the 'unbankable'? Millions of South Africans at the bottom end of the income pyramid have long been regarded as 'unbankable' and previous attempts to set up banks for this sector have failed. But now the Communist Party has come up with a scheme it believes will work.

What would Marx, Lenin and Mao have said? A communist bank? Socialists sitting down with capitalists? Unlikely and unthinkable? But that's exactly what's happening on the South African financial scene. The South African Communist Party (SACP) is to venture where commercial financial institutions fear to tread: it is opening its own bank at the lower end of the country's economic sector, although it's not quite as radical as it may sound.

The Red Bankers will be setting up shop amidst the wreckage of other financial institutions that ventured into what has long been described as "South Africa's unbankables", the country's poor. Littering the unbankable landscape are the bones of" the once robust Saambou Bank, and the feisty Unibank Both sought to make a buck in South Africa's vast and shifting informal and lower-paid sector; neither survived the high risk required for high return.

The mistake they both made was to apply conventional banking principles in a totally unconventional market. Saambou went out on a high-risk limb and soon found that the trunk had withered.

Unibank looked for quick market share with injudicious, high-interest, lending and was also soon belly-up.

So what makes the communists think they will fare any better in this most tricky and fickle of financial markets? The very thing that made communism seem attractive in the first place, nearly 90 years ago--co-operatives.

You've heard about co-operative farms and co-operative factories. Even though they collapsed from the inside in the 1980s, taking the communist system down with them, what's wrong with a co-operative savings and loan in South Africa in 2003?

The difference, they say, is in creating a cooperative financial entity of the poor within a strong and growing economy--an island of needy togetherness in a sea of capital. The tide of people too poor to interest commercial banks flows restlessly around the bottom end of the economy and is an ever-present source of embarrassment and anger for the government, simply because the unbankables have no access to capital as a means of lifting themselves out of the poverty trap.

NATIONAL CULTURE OF NON-PAYMENT?

One big negative is a national culture of non-payment, another is the amount of time and effort required to serve low-earners with little financial return for the bank, in other words an extremely high cost to income ratio.

One gets the impression that inside every South African commercial hanker is a corporate banker trying to get out, and that the masses would be better served by post office savings banks and building societies.

That's precisely the kind of financial entity the SACP has in mind.

It intends to corral the nearly 5m South Africans, some 40% of the non-rural population, that are unbanked into a cooperative savings and credit co-operative and open the doors to finance for SACP and trade union members, most of whom are amongst the low paid masses.

The concept is not entirely new in Africa. For more than a century, black South Africans shut out of formal financial establishments, organised their own 'banks' called Stokvels.

They work in various ways. In one of the most extreme, a group of say 20 low-paid domestic servants plough their entire monthly wages into a single pool and that goes to one member, allowing him or her to buy a high-priced item, bearing in mind they're too poorly paid to qualify for hire purchase or any other term-purchase plan. The recipient must then pay back an agreed amount over the next 24 months. The following month-end, another recipient gets a lump sum and the process is repeated. There are no written agreements; the system works remarkably well on trust, faith and reliance on personal integrity.

Notes Peter Bruce, editor of South Africa's Business Day financial daily: "The SACP and its members should not be naive about the economics of banking in South Africa. Confidence in the new bank is essential if it is to he stable and viable. Sure, we would all like higher interest rates on our deposits and lower ones on our loans. But banks like Saambou failed in part because they paid above the odds to attract deposits and that drove them into making riskier loans in the hope of higher returns. If the (SACP's) new co-op bank is to win public confidence, it cannot afford to be massively less 'exploitative' than commercial banks."

None of that seriously worries the SACP, although they concede their co-op bank will need additional specially legislated protection.

LOWER CHARGES ESSENTIAL

Commercial bank savings schemes for the low-paid repeatedly fail because charges inevitably exceed interest income, negating any benefit to customers.

"Commercial bankers make the mistake of charging their many fees to small savers,' says an economist. "They should recognise that they are dealing with people who don't earn much but want to use banks, and should adjust their charges. That way they will make a smaller profit from many customers. Lower charges will bridge the gap to a massive market."

For the banks, that's a bridge too far. All they see is a nightmare of administration in a vast and shifting market.

The SACP has taken a close look at the situation and is convinced that it will succeed in serving South Africa's millions of unbanked. While it recognises that its financial institution must be run along strict commercial lines, it has the edge because it need not make big profits for its shareholders--simply because there wont be any profits, or shareholders. Nor will they need flash high-rise office blocks in the ritzy areas of town.

SACP general secretary, Blade Nzimande, points out that legislation already exists that provides special dispensation for exemption from South Africa's Banking Act. The party's aim, he says, is to encourage trade unions and community organisations to establish cooperatives as building blocks for a cooperative bank. In this way, a savings culture can be created through which microlending can be made "to our members and people at far better rates than the commercials banks" To be known as the Dora Tamana savings cooperative, the bank will be "a democratic, member-driven, self-help, not for profit financial services cooperative," says Nzimande. "It will he owned and governed by its members."

Bankers with soul ... and rhythm & blues ... and rock!

Who says bankers ain't got no soul? There are at least seven in Cape Town with soul, rhythm, blues and, every now and then, a whole lotta rock!

That's what Dan Derivative and the Dead Cat Bouncers do when they're not counting beans.

The Dead Cat Bouncers is a seven-man band comprising mainly senior, middle-aged investment bankers and asset managers whose music material is an eclectic mix covering the 1970s and 80s when rhythm & blues, soul and rock dominated the hit parades. Now the musical moneymen play "for fun, our own enjoyment and to raise funds for charities," says John Snalam, lead guitarist and financial director at Coronation Fund.

At their last charity gig, the Dead Cat Bouncers raked in a cool R450,000 for Boys' Town in Johannesburg and before that around R17,000 for Elim House in the Western Cape, a sanctuary for physically and mentally disabled children and young adults.

The band raises large amounts for good causes by shamelessly turning the screws on fellow bankers, some of whom happily pay way over the ticket price to attend the events. They were referred to by a newspaper columnist recently as, "a boy band, compared to the Rolling Stones!"

Members of the group are John Snalam; Dan Ahem, guitar and vocals, derivative sales director at Cadiz Securities; Mert Black, rhythm guitar, sales director at Deutsche Securities; Nel van Niekerk, guitar and vocals, senior portfolio manager at Sanlam Investment Management; John McWilliams, bass guitar, administration manager of Cape of Good Hope Bank; and Rod Byl, TV unit manager. The bankers' band spent months in practice sessions before launching the Dead Cats into the Cape financial community. More events are planned this year. The group's name derives from the curious financial term "dead cat bounce", a temporary recovery on a stock exchange caused by short covering after a substantial fall, while not necessarily implying a reversal of the downward trend. Will the Dead Cat Bouncers cut a CD any time soon? "Too early to tell", says Snalam.

Citigroup

Best Banks

Citigroup, the US banking giant with global assets exceeding $1trillion, boasts a truly pan-African strategy, with extensive operations in 17 countries, spread across the continent.

In November 2001, it acquired ABN Amro's franchises in Angola, Cameroon, Cote d'Ivoire, Kenya, Nigeria, Uganda and Zambia. Citibank is ranked as the fifth and sixth largest bank, respectively, in Nigeria and South Africa. It remains the chief correspondent banker for a further 30-35 countries.

In July 2000, Citibank consolidated East, West and Southern African operations and headquartered them in Johannesburg.

Citybank's wide range of corporate and investment services have made important contributions in host markets. Over the years, Citibank has arranged numerous debt financing for big ticket projects. These included some of the region's largest investments: $1.6bn Nigerian Liquefied Natural Gas expansion; the Chad-Cameroon Pipeline ($600m); Bonny Gas Transport ($460m); mobile (GSM) operator MTN Nigeria ($455m); South Africa's Cell-C ($252m); and Ashanti Power Supply Project ($200m). Last May, Citigroup was the lead-manager for the $1.35bn sovereign issue for the South African government.

Ecobank

Ecobank is the largest bank in the Franc zone and the third largest in Africa in terms of network. The group has affiliates in 12 West African countries including: Benin, Burkina Faso, Cameroon, Cote d'Ivoire, Ghana, Guinea, Liberia, Mali, Niger, Nigeria, Senegal and Lome, Togo where the head-office is located.

Ecobank was the first private, regional commercial bank in West Africa. It was created from an original concept developed in the 1980s by the Federation of West African Chambers of Commerce who wanted a private financial institution that could transcend limitations of borders, languages and cultures.

The bank, which began operations in 1988, began with an authorised capital of $100m; at the end of 2002, the consolidated balance sheet registered $1.1bn. Despite the recent political upheavals in the bank' operating region, Ecobank has continued to show strong profits and, following a visit by one of its main shareholders, Prince Alwaleed Bin Talaal bin Adbulaziz al-Saud, has renewed its commitment to further expansion. (Please see pages 46-47).

Barclays Bank Africa

Barclays Africa serves about 1.5m personal and business customers, via 170 ATMs and a large network of over 200 branches across 11 countries employing more than 7,000 people.

Recently, the Barclays Africa division was shifted from London to Johannesburg--further proof of its commitments to emerging Africa. By total assets, Barclays ranks top in Botswana and Zimbabwe; second in Zambia; and third in Ghana.

Corporate customers enjoy access to specialised services such as risk-protection, e-banking, and asset and liability management. Barclays' Prestige-Premier banking services are popular among wealthy customers having diverse financial needs.

New services include telephone banking, custodianship for equities (in Ghana), insurance products and a US dollar deferred debit card. The Barclays Group has acted as joint book runners for major syndications, including the $1.3bn financing for the AfricaOne telecom project in Kenya, and a $1bn sovereign bond issue on behalf of South African government in April 2002.

Barclays, which has 55,000 credit-card customers in Africa, has signed a distribution deal with Standard Bank. Barclaycard thinks joint marketing could lead to 1m new customers in South Africa within 10 years.

Kenya Commercial Bank 

The Kenya Commercial Bank, East Africa's biggest group with assets of over Kshs74bn, operates 95 full-time branches and 35 satellite branches-representing one-half of total banking outlets in Kenya.

Retail services now comprise both personal-and-business banking for small-scale companies and coffee and tea farmers. Some popular products are the GoldPlus account, Visa gold card and its Insurance Premium Finance. Last August it launched the Simba (long-term) savings account. As the nation's bank, KCB is keen to foster a savings culture among the public.

Recent introductions include a global cash acceptance mechanism-which enables customers to deposit cash at any KCB branch and the amount is credited to their accounts within 24 hours; and the Visa certification of its ATM networks allows cardholders to access cash through ATMs.

KCB's corporate and treasury products are tailored for the specialised needs of institutional and wealthy customers.

Ghana Commercial Bank 

The Ghana Commercial Bank began operations in 1953 as the first indigenous, state-owned bank with specific task of assisting local businesses. Starting with just one office in the capital city, Accra, the privatised GCB today boasts 130 branches covering all regions, offering diverse services for corporate and retail customers alike.

Innovative products include Cedi Traveller's Cheques, The Consumer Credit Scheme, Flexsave-aimed at small savers and micro-financing and Special Premix Fuel Package for fishermen.

The bank has invested heavily in IT; 83 branches are now fully computerised. Also, it acquired a universal banking solution technology, Flexcube. This provides benefits such as real-time processing; efficient delivery system; rapid introduction of new products; and support development of internet telephone banking.

More recently, GCB introduced a global e-banking and financial service, known as Comernet which will allow customers to undertake various transactions from homes or offices and receive up-to-date statements on their activities. GCB's transformation from largely a weak bank during the 1980s saddled with bad debts, into a vibrant market leader, has been remarkable. The European Market Research Centre has conferred 'The Bank of the Decade: 1992-2001 award on GCB.

Union Bank of Nigeria

The Union Bank of Nigeria plc, one of West Africa's oldest banks, established in 1917, operates over 300 branches and 100-plus ATMs throughout the country. It offers excellent retail and corporate services-in foreign currency domiciliation, equipment leasing and commercial papers. Technical expertise facilitates customers with access to electronic products such as Union e-Link, Telephone Banking and Union Valuecard.

UBN has created a true financial supermarket with five-subsidiaries, focusing on merchant and wholesale banking, stock-brokering, insurance, mortgages and trusteeship (pension fund management). These sub-sectors make sizeable contributions to the group's profits. The bank prides itself as a promoter of the nation's economic development and growth. It has won major prizes like the Nigerian Stock Exchange President's Merit Award (12 times), Central Bank of Nigeria Best Agric Support Bank, and the Securities & Exchange Commission's Special Award 2000, in recognition of UBN's services toward capital market development as registrars.