WOCCU Helps South Africa Develop Country’s First Deposit Insurance
CUs Likely to Beat Banks in Adopting Critical Financial Safety Net
June 22, 2009
NORTHWEST PROVINCE, South Africa—Ntaba David works in a cement factory in Lichtenburg, South Africa. Despite his modest income, he has managed to save 108,300 rand (US$13,358) by dutifully depositing his monthly paycheck in Ditsobolta Savings and Credit Co-operative (SACCO, or credit union). The savings make David a wealthy man by local standards, but South African financial institutions—including banks and SACCOs—have historically lacked any type of deposit insurance. If Ditsobolta SACCO liquidated, David's savings would disappear, a fact that has long worried the factory worker and other depositors.
At the invitation of South Africa's National Treasury, World Council of Credit Unions (WOCCU) has taken steps to make sure that David and SACCO members nationwide do not lose their deposits. WOCCU's initial work with South Africa's government eight years ago to develop legislation specific to financial cooperatives culminated in January 2008 with the passage of the Cooperative Bank Act. Last week, Dave Grace, WOCCU vice president of association services, led a workshop in Pretoria for representatives from South Africa Reserve Bank, Cooperative Bank Development Agency and the National Treasury, outlining a government-backed deposit insurance plan to protect consumer savings.
"South Africa's Cooperative Bank Act calls for deposit insurance," Grace said. "Right now, South Africa has no deposit insurance for any of its financial institutions. Thanks to passage of the cooperative bank law, the path has been cleared so that South Africa's SACCOs will be the country's first financial institutions with deposit insurance to protect their members."
Despite 15 years of political freedom from apartheid, much of South Africa's population is still marginalized from sharing in the country's wealth. South Africa's SACCOs have made some inroads rebalancing economic power, but slow growth has raised concerns among government officials. Enacting deposit insurance among the country's financial cooperatives will increase the depositor confidence and enable the SACCOs to grow, according to Omega Shelembe, the National Treasury's director of banking development.
"Having deposit insurance introduces a complementary element in the financial safety net," Shelembe said. "This element, together with improved regulation and supervision will increase both the attractiveness and accountability of the SACCO sector and bode well for the growth of the movement."
During the WOCCU workshop, Grace stressed the importance of protecting the savings of small and medium-level depositors as a way to help stabilize not only SACCOs, but the country's economic system as a whole. A deposit insurance structure that covers the majority of depositors, rather than focusing the amount of funds on deposit, would provide the best possible protection to individuals and institutions alike. The program also should be on par with that of commercial banks once bank deposits are also covered by deposit insurance.
"The protection provided by deposit insurance enhances the level of public confidence in South Africa's SACCOs," Shelembe added. "Over time, we believe SACCOs will build their credibility and ultimately compete with the commercial banking sector for the mobilization of savings and provision of loans."
World Council of Credit Unions is the global trade association and development agency for credit unions. World Council promotes the sustainable development of credit unions and other financial cooperatives around the world to empower people through access to high quality and affordable financial services. World Council advocates on behalf of the global credit union system before international organizations and works with national governments to improve legislation and regulation. Its technical assistance programs introduce new tools and technologies to strengthen credit unions' financial performance and increase their outreach.
World Council has implemented 300+ technical assistance programs in 89 countries. Worldwide, 68,882 credit unions in 109 countries serve 235 million people. Learn more about World Council's impact around the world at www.woccu.org.