Intellidex has prepared a submission to the Standing Committee on Finance regarding transformation of the financial services sector. In it, Intellidex argues that:
• Financial institutions are unique in that shareholding is not only a question of ownership and control, but also of the competitiveness and systemic soundness of institutions.
• Financial institutions can be transformed, and drive transformation in the wider economy, by innovating new products that promote financial inclusion and the financing of black businesses and individuals.
These particular features of the financial industry are best served by having a purpose-built charter. The Financial Sector Charter made a significant and positive impact following 2003 when it was implemented. The negotiating process itself was highly effective in promoting introspection in the industry and getting industry leaders to recognise the issues that banks, insurance companies and asset managers face in transforming themselves and the economy. However, with the expiry of the Charter at end 2008 following the failure to bring it in line with the broad-based black economic empowerment codes, the energy and focus it had promoted has dissipated. The recent gazetting of the amended Charter is an opportunity to re-energise the transformative efforts of the sector, as is the parliamentary hearing.
We recommend, however, that parliament also think about the opportunities there are for government to help support innovation and unlock other barriers to further transformation. In particular it can:
• Help unlock structural barriers to black financing by facilitating policy to assist black land holders to obtain title deeds to their properties.
• Promote innovation by using its balance sheet to absorb risks that the financial sector cannot bear alone. This should be done at a cost to financial institutions that compensates the tax payer for this risk.
We also have argued that:
• The creation of new banks has to overcome significant barriers to entry including the higher cost of funding. We believe that the creation of a new black-owned bank would face this same challenge. If the objective is to drive change it is better achieved by transforming the existing industry.
• The government currently has a set of significant financial institutions that broadly straddle the financial services sector. Where there are gaps it is preferable to develop these institutions to fill such gaps than to introduce a new state-owned bank.
Ultimately, we believe that the financial sector is a national asset that can contribute dramatically to the development of the country, helping to eliminate poverty and reduce inequality. To realise that potential it needs the right policy environment.
