By Karabo Seane
South Africa is a country with a painful past, characterised by, among other things, economic exclusion and the deliberate pauperisation of the Black population. Black people were reduced to providers of labour, not owners of the means of production. The onslaught against Black-owned financial institutions by the Reserve Bank’s Prudential Authority is a painful reminder that economic transformation remains an elusive pipe dream.
Recently, the Prudential Authority has unsurprisingly come under heavy scrutiny for the way it conducts business. The closure of Black financial institutions raises questions about its commitment to fairness and equality. The perceived or real targeting of Black financial institutions, while not new, has had far-reaching consequences, limiting access to financial services for marginalised communities and perpetuating economic inequality.
Systemic Bias Against Black Financial Institutions
The regulator's failure to save Black financial institutions from forced liquidation or closures raises disturbing questions about systemic bias. Its commitment to economic transformation is questionable. The recent struggles of Ithala Bank, Akani Holdings, VBS Bank, 3Sixty Life, and others have cast a spotlight on the Prudential Authority's treatment of Black-owned entities in the financial sector.
In the case of Ithala Bank, it was suspended by the regulator for failing to meet the solvency requirements set out in the Financial Advisory and Intermediary Services Act 37 of 2002. It is reported that the suspension will remain in place until Ithala satisfies the conditions required to lift the sanction. This affects the bank’s ability to recruit new clients, generate income, and meet its liabilities.
The Prudential Authority’s mandate is to regulate and supervise financial institutions. However, the stringent requirements they have put in place, while intended to ensure stability and soundness, disproportionately affect Black financial institutions. These institutions, often with limited resources and scale, struggle to comply with the same regulatory burdens as their larger, more established (and mostly white-owned) counterparts. This stifles innovation, limits access to capital, and reduces competitiveness among Black businesses.
Lack of Transformation in the Banking Sector
Thirty years into democracy, the banking sector remains largely untransformed, with Black ownership and control remaining marginal. The Prudential Authority has a critical role to play in promoting transformation, but its actions often seem to perpetuate the status quo. The suspension of Ithala Bank raises critical concerns about the treatment of Black financial institutions in general, especially in the context of economic transformation and inclusivity.
While it is concerning that Ithala Bank and others have failed to meet the Prudential Authority’s requirements, many in the industry view the punitive measures as a calculated assault on Black financial institutions and Broad-Based Black Economic Empowerment (BBBEE). Instead of assisting the bank to remedy its shortcomings, the Prudential Authority is acting as a bully.
Ithala Bank has an extensive rural footprint, serving communities that, in some cases, must travel more than 100 kilometres to the nearest commercial bank. It currently serves over 61,000 South African Social Security Agency (SASSA) grant beneficiaries, and the suspension will prevent new beneficiaries from using the bank to access their grants.
Although the intervention of the Parliamentary Standing Committee on Finance comes too late in the ongoing matter between the Prudential Authority and Ithala Bank, it must be commended. Dr Joe Maswanganyi, the committee’s chairperson, made a strong appeal during a two-day oversight visit to the bank, stating that "Ithala Bank must not die on our watch".
Disparate Treatment of Black and White Institutions
A disturbing trend has emerged where white-owned institutions receive more favourable treatment, including regulatory leniency and access to resources that Black institutions can only dream of. The financial assistance, amounting to billions, offered to white-owned banks during the COVID-19 pandemic stands in stark contrast to the stringent requirements imposed on Black financial institutions. This disparate treatment undermines confidence in the regulatory system and perpetuates economic inequality.
For example, Old Mutual Life Assurance Company was fined R15.9 million for failing to comply with certain provisions of the Financial Intelligence Centre (FIC) Act, with R5.9 million suspended for three years. Old Mutual is now in the process of opening a bank, expected to launch in 2025.
There seems to be a concerted effort to stifle Black financial institutions from prospering, with far-reaching consequences for economic empowerment and transformation. By limiting access to financial services and capital, these institutions are unable to effectively serve their communities, perpetuating financial exclusion and inequality. This, in turn, hinders the growth of Black-owned businesses, stifles entrepreneurship, and undermines economic development.
Who can forget the Prudential Authority’s search and seizure operation at Akani Retirement Fund Administrators (Akani) offices in 2023? The drastic measures taken by the Authority damaged the reputation of the largest Black-owned and managed retirement fund administrator in Southern Africa. The failure to save VBS Mutual Bank, a beacon of hope for Limpopo's poor and elderly, will always remain a sore reminder of the Authority’s lack of interest in supporting Black financial institutions.
Systemic Racism and Human Rights
The closures and suspensions of Black financial institutions are not mere regulatory missteps; they reek of regulatory capture, bias, and a disregard for the communities these institutions serve. It is not far-fetched to suggest that the Prudential Authority's leadership, which is overwhelmingly white, perpetuates a toxic environment that stifles innovation, growth, and access to finance for Black entrepreneurs and communities.
Ithala Bank, a 47-year-old institution, is currently facing an unenviable situation despite its vital role in KwaZulu-Natal's marginalised communities. The closure of this institution will have devastating consequences for the communities it serves.
The closures and suspensions of Black financial institutions represent a disturbing pattern of systemic racism. Each closure or suspension leads to job losses, devastated communities, and vanished economic opportunities. The deepening poverty and inequality will have lasting effects on future generations.
The Prudential Authority's actions undermine South Africa's constitutional commitment to economic empowerment and equality. The finance minister, Reserve Bank, and Parliamentary Standing Committee on Finance must initiate an immediate investigation into allegations of regulatory capture and systemic racism by the Prudential Authority. If this does not happen, the total annihilation of Black financial institutions will reverse the gains of democracy and perpetuate apartheid-era economic disparities.
* Karabo Seane is a communication strategist and consultant. He holds a Bachelor of Arts in Communication from the North West University and an MBA from Mancosa.
** The views expressed do not necessarily reflect the views of IOL or Independent Media.