Q/A with Mr Yunis Ismail Carrim | Member of the National Assembly, Chairperson of the Standing Committe on Finance

PRELUDE
The Standing Committee on Finance (SCOF) and the Portfolio Committee on Trade and Industry (PCTI) held public hearings on the transformation of the financial sector in March and May 2017. The Committees subsequently released a 1st report on the transformation of the financial sector in November 2017. We spoke to the Chairperson of SCOF on why the hearings were held, key recommendations made and how he thinks the sector should be positioned for the future.

 

Question 1
Why did Parliament hold public hearings on the state of transformation in the financial sector?

 

Answer

For four reasons:

  1. Firstly, the National Treasury was shaping a new financial system for the country. Some commentators said it was the most significant change since 1922. I am not sure that, that is accurate, but in some or other measure it was clear that we were moving towards a significantly new model altogether. Taking into account the 2008 global financial and economic crisis that affected most parts of the globe, Treasury [National] presented a model [Twin Peaks] that would seek to ultimately protect the depositors of banks and policy holders of insurance companies and generally serve the needs and interests of the lower income earners and the poor and disadvantaged. It was meant to be transformative.
  2. Secondly, the first Bill that we had to process in this regard was the Financial Sector Regulation Bill. What emerged in the hearings on that Bill and the subsequent exchanges with stakeholders is a considerable disgruntlement, to put it mildly, among African and more generally black stakeholders in the financial sector. They felt that the Bill did not go farenough, that Treasury [National] was not being as transformative as it could be. More specifically, they said that the Treasury [National] was influenced far too much by the need to meet global regulations and standards rather than addressing the domestic challenges we have around racial and class exclusion.
  3. Thirdly, ourselves as MPs [Members of Parliament] and myself as the Chair in particular, were receiving complaints from individual citizens who in some or other way were affected by the financial sector, either as individual clients or as businesses or as people seeking to enter the economic space and who could not secure the loans necessary to give them that opportunity or who felt for several other reasons that they were being excluded on racial grounds for services the financial institutions should be providing to all applicants who met the minimum criteria.
  4. Fourthly, there were also objections to the Financial Intelligence Centre Amendment Bill – and there again some similar themes emerged. People felt once again,
    government is passing legislation to meet more the needs of international regulators and global standards rather than ensuring that it addressed domestic concerns. They also argued that both in respect to the FIC [Financial Intelligence Centre] Amendment Bill and the FSRA [Financial Services Regulation Act] Bill and the financial sector as a whole, that many of these regulations that are decided in global forums serve in fact to make it more difficult for new entrants in the financial sector. The requirements for entry are far too onerous in respect of having the necessary capital and other resources and skills.

So we agreed that before we processed other Bills in the tranche of Bills that give effect to this new Twin Peaks Model, we would actually have hearings on the broader financial sector. At that time we had the new Insurance Bill before us, but we decided not to proceed with it until we had these hearings. It turned out to be the largest ever public hearings of the financial sector that Parliament had since 1994. The range of stakeholders, I was told by journalists and technical experts was very impressive. I was told that it was very unusual for the CEOs [Chief Executive Officers] of the four major banks themselves to appear before the Committee, and also that such a wide group of emerging stakeholders in the sector surfaced in those hearings.

We finally did the draft report (Interim Report on the Transformation of the Financial Sector, 6 September 2017) which we sent to the stakeholders to comment on. This is not an obligation by any means in terms of the rules of Parliament but we did that so as to give the stakeholders a chance to have a second say, as our Committee often does with Bills as well.

We then adopted the report [1st Report on the Transformation of the Financial Sector, 15th November 2017]; I think it’s about one hundred and thirty pages. We took it to the House, it was adopted there, the DA opposed it(1) if I recall. And apart from that, all the Committee [members] supported it. We decided that we will evolve a  programme out of it.

 

Question 2

In this 1st report several recommendations were made. What happens now in terms of the implementation of those recommendations made?

 

Answer

We have a staggering legislative and oversight workload, and also have to process the budget, but we have done the following:

  1. The PCTI and the SCOF agreed that we will continue in our respective oversight work to follow up on the recommendations in the Financial Sector Transformation
    Report and these recommendations will also shape our processing of relevant Bills before us. And in our case, we did that with the Insurance Bill.
  2. We also require Treasury [National] to report on progress on the recommendations made in their quarterly reports to our Committee. So it is part of the routine work that we do.
  3. I spoke at the Banking Association of South Africa annual conference last year shortly after the report was adopted.
  4. I also spoke at the financial sector coalition summit and the NEDLAC [National Economic Development and Labour Council] preparatory workshop some six weeks ago.
  5. We have facilitated dialogues between contending stakeholders during the report writing process.
  6. We have made it clear to representatives of NEDLAC that our Committee will not endorse any Financial Sector Summit decisions that have not looked at the recommendations that we proposed. Those recommendations flow from the hearings; you can’t have major hearings like that and NEDLAC ignores them. Although, we are not saying, let me stress, that all our recommendations must be implemented – not overnight either.
  7. As the Chair, I also have had to deal with specific issues affecting specific people who contacted us after the hearings and raised their concerns; where it was appropriate to intervene and facilitate negotiations, this was done.

I know from anecdotal evidence that the private sector is taking the report reasonably seriously. We are told by people who we meet that in fact the report forms the background of some transactions and negotiations taking place between them and their adversaries in the sector. Without making too much of this, it seems reasonable to say that the report has had some measure of influence in making people at least talk.

Ultimately it’s action that we need. You cannot expect Parliamentarians to take transformation further than we have in terms of policy and recommendations. Where are the people out there in the streets, where are the people campaigning? Where is civil society in this regard? In our report in the last section we say that we can do so much and we can open doors for civil society to be more assertive. It’s not enough for civil society to write letters to us or complain; they must publicly campaign. The more they campaign out there, the more space it creates for Parliament to push for transformation. The more we push for transformation inside Parliament, the more space it creates out there for stakeholders to mobilise. So, in short, there is a dialectical or mutually reinforcing relationship between Parliament and civil society. My view is that and I think the Committee in the majority will agree that civil society is not taking the campaign to transform the financial sector seriously enough.

 

Question 3
How do you think the financial sector should position itself for the future?

 

Answer

Well it’s set out in our report, in the observations and recommendations section. Deracialisation of the financial sector is utterly crucial to transformation, but it is not
the be-all and end-all of transformation. My own view and I think it is shared by a significant number in the Committee, certainly the ANC [African National Congress]
comrades is that we would like to see a financial sector that:

  1. Is empowering for not just the better-off black South Africans but the poorer, lower income earners as well.
  2. Plays a far more active role in the economic growth, job creation and the developmental goals of the country.
  3. Should be diversified and more competitive comprising private, co-operative and state banks, which could take various forms, including specialised or monoline banks such as savings, mortgage and mutual banks.
  4. Uses fintech to encourage new banks without brick and mortar branches with new black and especially African owners and cheaper services.
  5. Creates more space for start-ups, for blacks and particularly Africans.
  6. Creates more space for small businesses and emerging businesses for the lower strata [of our society].
  7. Gets its profits but also contributes towards the country’s National Development Plan.
  8. With greater diversity of ownership, not just along racial but gender lines as well.
  9. Is not overly focused on urban areas but on the periurban and rural too where you can also at the same time secure your profits and also serve people. There is no necessary mutually conflictual relationship in securing profits and serving people. That can be done!
  10. Can actually create space for new entrants who do not require huge amounts of capital to start small banks and differing regulatory requirements according to the systemic risks of a bank to the financial system.
  11. A state bank to provide more competition and more affordable services.
  12. Should be part of the overall economic transformation as part of a developmental state that significantly reduces the inequalities in our society.

Our concern is that often the entrepreneurs who are excluded up to now may be taking up transformation only to the extent that it serves their particular class and business interests. They may not be concerned to advance the needs and interests of the black, particularly, African people of our country. So we would like to see a transformed financial sector that is not just deracialised to serve the better-off only, but includes the lower strata, the poorer, in our country as well.

The lessons from the post-colonial transitions in most of the developing world – in our continent, South America and Asia – is that the new elites acted largely in their
own self-interests at the expense of the masses. Yes, we certainly need a black, particularly African, bourgeoisie in our country, but we also need to empower the masses. We have the worst income inequalities in the world and a transformed financial sector has to play its part in reducing these inequalities – or we will all suffer the consequences!

 

 

 

(1)Certainly in the Committee meetings they [Democratic Alliance] vigorously
opposed the report. They felt it was going too far, it was prodding on the
rights and interests and needs of the banks, it was too intrusive, and that
it would cause a flight of capital, it would reduce investment.