
=====================================================================
Speech at the SACCOL AGM, 21 July 2000
=====================================================================

Speeches and Media Release
 Provincial Treasury, Economic Affairs, Environment & Tourism

[         w

EASTERN CAPE PROVINCIAL GOVERNMENT

ADDRESS ON BEHALF OF MEC GODONGWANA

AT THE SACCOL AGM HELD AT THE EASTCAPE TRAINING CENTRE, PORT ELIZABETH

 ON 21 JULY 2000



PROMOTING A CULTURE OF SAVING THROUGH SELF HELP

Members of SACCOL, the Chairperson and Members of the SACCOL Executive Committee, the Registrar of Co-operatives, Mr Rapoo, distinguished 
guests, ladies and gentlemen, thank you for this opportunity to address the SACCOL Annual General Meeting, which is the first to be held in 
the Eastern Cape; but certainly not the last.

Please allow me to tender sincere apologies on behalf of the MEC for Economic Affairs, Environment and Tourism, who is unable to be with 
you today, due to a constituency obligation that he has in Queenstown.

It is well known that poor and marginalised people in developing countries have a great deal of difficulty in breaking out of the vicious 
circle of poverty that prevents them from participating actively and productively in economic development. However, experience has shown[1] 
that access to basic credit facilities based on the mobilisation of household savings can mean a great deal to poor families, whether they 
live in urban or rural areas.

The challenge of providing access to financial services at reasonable cost to those who have limited means has been difficult, and has 
often resulted in failure – for a number of reasons. Until relatively recently, state-run and financed development corporations and banking 
institutions were seen as the solution to the problem of access to finance in most developing countries, including South Africa. However, 
such institutions were severely handicapped in their performance by shortcomings in the banking principles upon which they were based; 
viz., inappropriate collateral requirements for lending, little incentive to do business with the poor, excessive dependence on government 
funding, and a pervasive political patronage that influenced the allocation of scarce loan resources.

All too often, loans were distributed at heavily subsidised interest rates, with little serious consideration given to repayments: and, 
very often to people who did not really need the advantage of state subsidisation. Such practices tended to erode borrower discipline to 
the extent that loan arrears and defaults multiplied rapidly. Thus, not only did institutions of this kind fail to serve the poor who were 
not able to provide the collateral required, but they became chronically dependent on larger and larger subsidies, and were unable to 
secure any prospect of long-term financial sustainability. Not surprisingly, support for state-sponsored financial institutions has 
declined substantially in recent years, and it has become imperative to identify and implement financial market reforms to address the 
distortions caused by previous government policies.

Increasingly, governments, donor agencies, and NGOs have turned their attention to looking for alternative models for extending financial 
services to the poor in effective and economically sustainable ways. Almost without exception, the kinds of models that have emerged from 
such environmental scans have been those that have a secure membership base in the communities that they are intended to serve. They are 
owned and controlled by those communities, and have a clear empowerment and capacity-building point of departure. The well-known Grameen 
Bank initiative is one such example. However, it is not appropriate to simply transplant such success stories from one socio-economic 
environment to another, and to expect them to work. It is essential that the model or models adopted by a country should be fashioned and 
adapted to suit the particular circumstances of the people in that country – even to the extent that internal variations might need to be 
developed to fit the specific needs of people in different parts of the same country. In other words, there is no magic wand that can be 
universally applied, with equal success.

The key considerations are whether people have funds to save, and whether there are any real incentives for them to save. In recent years, 
in South Africa, the ability of households to save has been eroded by unemployment, insufficient income and a tendency to spend available 
income on consumption goods.

Two statistics serve to illustrate this point: the proportion of household income that is taken up by debt commitments, and the proportion 
of household income that is devoted to savings. These are indicated in Table 1, below:

Table 1: Proportion of Household Income Allocated to Debt and to Savings (South Africa: 1992-1999)

Indicator        Year
1992     1993    1994    1995    1996    1997    1998    1999
Household Debt to Disposable Income of Households (%)    50.8    52.0    54.4    57.4    60.5    61.2    61.0    58.6
Saving to Disposable Income of Households (%)    5.3     4.5     2.8     1.8     1.8     1.6     0.9     0.8

Source: South African Reserve Bank Quarterly Bulletin. No 216, June 2000

It is evident that, over the past eight years, South African households have allocated well over half of their disposable income to debt 
payments, and that this has been closer to 60% between 1996 and 1999. Moreover, the proportion of household income allocated to saving has 
declined steadily, from around five percent in 1992 to less than one percent in 1998 and 1999. These indicators reflect circumstances of 
some concern, and do not represent a society with a particularly high capacity to save.

It should be noted, too, that these statistics refer to the overall situation of all households in South Africa. Conditions amongst poor 
households, particularly those in rural areas, are probably much more serious. In fact, it is highly likely that poor households need to 
allocate closer to 80% of their disposable income to debt payments, and probably cannot save at all!

Nevertheless, the imperative to mobilise households towards adopting an ethic of saving remains important for the economic well-being of 
the nation. This does not happen through a top-down instruction from government to force people to save. It must be based on a bottom-up 
realisation of the intrinsic values associated with saving and the benefits that can be derived from saving. But this is unlikely to happen 
of its own accord – especially where people struggle to make ends meet, let alone devote a portion of their income to savings. There must 
be an incentive to save, backed up by a sound institutional structure that will guide people through the challenges associated with the 
discipline of saving, and to provide sound safeguards regarding the security of their hard-earned money.

Perhaps one of the most important incentives to save lies in the prospect of being able to use saved resources, however modest, to gain 
access to micro-financing services, training services and to opportunities to engage in small-scale business activities that will provide a 
sustainable income for poor households. Such an approach forms the basis of the "savings-based approach to micro-finance", and is the 
foundation upon which the international credit union movement is based.

This is precisely what the Savings and Credit Co-operative League of South Africa (SACCOL) is all about. Strengthened by its association 
with the World Council of Credit Unions (WOCCU), and its international network of people helping themselves, SACCOL has begun a vitally 
important initiative to build a uniquely South African institution to encourage the establishment of a bottom-up movement to build such a 
savings-based approach to micro-finance. In more than 70 developing countries throughout the world, the credit union movement has attracted 
some 20 million members; in many instances providing their first access to affordable financial services.

WOCCU documents[2] tell us that more than US$ 10 billion worth of member savings has been mobilised in developing countries; which credit 
unions have invested in a loan portfolio of more than US$ 9 billion! The loan fund has financed investments in micro-enterprises, farming 
activities, housing renovations and consumption loans to improve immediate living conditions. This is a most impressive track record that 
holds much promise for SACCOL’s association with WOCCU.

The principle of applying member savings as the primary source of funds for lending is well established amongst successful credit unions. 
It is this characteristic that provides for a sustainable institutional structure which does not depend on hand-outs from government. The 
basis for success lies in the extent to which an integrated network of credit unions can be expanded, held together by a central guiding 
and facilitating institution. As has been indicated by WOCCU:

"What most distinguishes credit unions from other entities offering micro-finance services is the ability of credit unions to mobilise mass 
numbers of small, voluntary savings accounts".

This is clearly the key. Success lies in demonstrating the advantages of joint and co-operative action to as large a potential constituency 
as possible; perhaps particularly to poor households who find themselves effectively excluded from opportunities to break out of the 
poverty cycle.

In an address to a WOCCU conference[3], held in Cape Town in August 1998, the South African Minister of Finance, Trevor Manuel, indicated 
that the time has come for dedicated innovation in critical areas of financial services that are not provided by the formal banking sector. 
In this regard, he referred to the credit union movement as one of the most powerful ideas in the financial world that has been ignored for 
too long. On that occasion, Minister Manuel suggested that the time for rapidly expanding the potential of the credit union movement has 
never been greater. He urged WOCCU to build the movement, to educate existing and future members thoroughly, to deepen democratic 
participation through partnerships with working people in their institutions; and, more importantly, to give co-operative members a direct 
say over their affairs.

It is instructive to consider the essential operating principles of the international credit union movement, and to assess the extent to 
which these match up with Minister Manuel’s recommendations. The following principles that characterise credit unions are drawn from 
WOCCU’s information material:

Democratic Structure

* Open and Voluntary Membership, based on a common bond of association, which is willing to accept the responsibilities that are associated 
with a collective initiative;
* Democratic Control, through which members have equal rights to participate in decisions affecting their credit union;
* Autonomy and independence, within a framework of law and regulation, which recognises the credit union as a co-operative enterprise 
serving and controlled by its members;
* Non-Discriminatory with respect to race, nationality, gender, religion and political persuasion;

Service to Members

* Services that are designed to suit the requirements of its members, and to improve their economic and social well-being;
* Distribution to Members, through payment of fair rates of interest on savings and deposits, so as to encourage thrift amongst members, 
and appropriately fair and equitable mechanisms to distribute any possible surpluses to members;
* Building Financial Stability, through making adequate provision for reserves and internal controls to ensure continued and sustainable 
service to members.

Social Goals

* Providing on-going education to members, officials, employees and the general public regarding the economic, social, democratic and 
mutual self-help principles of the credit union movement;
* Co-operation amongst co-operatives, locally, nationally and internationally, to gain the maximum advantages from pooled resources and 
knowledge;
* Social responsibility and social justice to ensure that decisions are taken with full regard for the interests of the broader community 
within which the credit union operates.

It seems clear that Minister Manuel would applaud these principles and that they fall well within the scope of his recommendations. 
Implementing the principles, however, is an enormous undertaking. It requires stringent responsibilities and a fundamental commitment to 
serving the people; particularly in South Africa where the predominant target market consists of poor households, most of whom are not 
familiar with the principles of financial institutions; although their experience of collective behaviour towards a broader community 
benefit is well established.

In the light of this background, the extension of the credit union movement to the Eastern Cape, through the emerging network established 
by SACCOL, is a most welcome initiative. The circumstances of unemployment, deprivation and poverty in this Province are well known; 
particularly to the extent that they affect poor and marginalised households, especially in rural areas.

Informal mechanisms that already exist in the form of stokvels, burial societies and other institutions based on collective participation 
have been established in the Eastern Cape for many years. Whilst many of these are vibrant forms of social and economic interaction, it is 
evident that they do not provide the kinds of services that are available through participation in a credit union or a savings and credit 
co-operative. The mass mobilisation of these modest resources through the integrity, empathy and transparency that are reflected in 
SACCOL’s operational structure and practices would contribute significantly towards addressing the real and immediate needs of poor 
households in the Province.

We should be under no illusions, however, about the magnitude of the task that SACCOL has set for itself. It will take a while to mobilise 
mass savings to the extent that a viable and sustainable institutional structure can be established. Towards this end, it will be prudent 
to begin operations in the Eastern Cape on a relatively small scale and to build the movement through persuasion, education and 
demonstration. This has already commenced with the establishment of emerging SACCOs in Port Elizabeth and East London; and this is probably 
the most appropriate strategy to adopt at this stage.

It is also necessary to take into account the nature, purpose and experiences of already existing institutions in the Province. In 
particular, the activities of the Eastern Cape Development Corporation, the recently established Eastern Cape Rural Finance Corporation 
(Uvimba), the Poverty Alleviation Fund administered by the Department of Welfare and the discretionary services available through the 
Office of the Premier, amongst others, should be carefully examined to ensure that overlapping services and duplication are eliminated. 
Through these institutions, the Eastern Cape Provincial Government has demonstrated a clear commitment to addressing the plight of the poor 
in the Province, and considerable resources are allocated towards this end.

It is clear, though, that there is an important role for an organisation such as SACCOL to play in strengthening the nature and quality of 
financial services that are accessible to poor households. The inclusion of a broadly based community education programme regarding the 
potential benefits and security associated with such service provision should be a priority consideration for SACCOL. Poor households are 
susceptible to a wide variety of schemes and temptations that appear to offer quick and easy solutions to their desperate situation. Such 
undertakings include illegal activities, like the pernicious pyramid schemes that promise almost instant wealth, and are frequently 
disguised as "co-operative investment opportunities" or "opportunities for black empowerment".

They also include legalised activities, like gambling and betting, which offer prospects for people win their way out of poverty that are 
only seldom realised. In this regard, however, it may well be possible for SACCOL to turn the consequences of gambling and betting to its 
advantage by making application to the National Lotteries Board for an allocation from the Development Fund that has been established for 
disbursements to community development initiatives!!

Furthermore, the poor are also faced with increasingly available inducements from the ubiquitous activities of unscrupulous money-lenders. 
Once hooked into the cycle of borrowing, and then borrowing more to pay off their initial loans, often at exorbitant interest rates, it 
becomes almost impossible for them to escape from their increasingly desperate situation. Whilst such practices do not necessarily apply to 
all operators in the micro-lending industry, their prevalence, and the damage they have done to poor households, is a cause for much 
concern.

The founding principles of the credit union movement provide a more secure alternative to such inappropriate allocations from the scarce 
resources of poor households. In order to prove the point, though, it would be necessary for the emerging SACCOL movement to ensure that 
its target communities are better informed about the dangers that are inherent in these potentially dangerous activities.

In conclusion, it should be emphasised that development financing mechanisms of any kind are a means to an end, rather than an end in 
themselves. The ultimate end is to formulate instruments and procedures that will contribute towards sustainable economic development, 
beginning at the level of the household. The credit union movement, including SACCOL, falls into this category of institutions. In other 
words, the overriding intention must be to promote and facilitate a culture of saving through self-help, rather than building and extending 
an institution for its own sake.

There is much cause to be encouraged by SACCOL’s performance over the past couple of years. Of course there have been setbacks and 
disappointments.

But this is probably inevitable, given the enormity of the challenge that faces SACCOL in an environment where there are many competing 
attractions, many of which appear to offer easier ways of making money because they do not include the measures of discipline, 
responsibility, democracy and transparency that characterise the credit union movement.

I wish you well in your AGM proceedings and deliberations.

Thank you very much.

Delivered by: Bill Davies, Programme Co-ordinator, Research, Policy Planning and Information Systems, Department of Economic Affairs, 
Environment and Tourism

---------------------------------------------------------------------
Home | About the Eastern Cape | Economy  | Links
 Structures | International Relations | Documents
 Premier's Office | Speeches & Media Releases
 Top of Page

---------------------------------------------------------------------

About the Eastern Cape

Premier's Office

Structures

Documents

Speeches & Media Releases

International Relations

Economy

Links


