WASHINGTON - It must have afforded a glimpse of what Filene and Bergengren surveyed as they shepherded the American credit union movement through the Great Depression, skirting thickets of jurisdictional differences, cultural prejudices, and industry snares ultimately to democratize finance throughout the U.S. with the passage of the FCU Act of 1934. But now it was CUNA Senior Legislative Counsel Gary Kohn and two others in post-apartheid South Africa-democratic only since 1994-who were experiencing an exotic kind of de'ja` vu as they conducted a World Council of Credit Unions-sponsored (WOCCU) fact-finding tour of the country's struggling credit union system. There, Kohn, WOCCU Financial and Information Services Officer David Grace, and Wisconsin Attorney Gina Carter consulted with credit union (called savings and credit cooperatives or SACCOs in South Africa), government, banking, and economic development officials in three cities to assess just how to use the country's legislative and regulatory apparatus to promote the growth of South Africa's 21-credit union, 7,000-member CU system. "(Our purpose was to) go to South Africa," said Kohn of his CUNA-blessed, April 2-16 trip, "and review the different laws and regulations under which credit unions are operating in, as well as some of their competitors, and determine whether there were any impediments to their growth or any opportunities to promote their growth." And what they found were conditions similar in some respects to those in pre-FCU Act America: a hodgepodge of weak and conflicting laws for cooperatives that hamper CU growth, marginalize the movement, and provide no deposit insurance or tax exemption; widespread poverty marked by high unemployment and a chasm between rich and poor; money center banks bucking political pressure to serve people of modest means; widespread ignorance of the benefits of cooperative finance; and a downtrodden but hopeful populace eager to improve their lot. But there was one finding that actually had a counterpart in modern America, and which, as in America, is roiling official and consumer advocacy circles: the proliferation of predatory lending outlets in underserved South Africa. And then there was South Africa's American-style high crime rate, no doubt partially due to its other social ills but which accounts for the unhelpful fact that SACCOs keep no cash on hand. "I was very impressed by...how complicated it was over there...(and) by the commitment of the people within the credit union movementover there and their dedication-and (by their efforts to be) part of the whole nation-building process," Kohn said of his two-week trek with the Savings and Credit Cooperative League (SACCOL) of South Africa. "And for me it was very rewarding to be there to help with that, because it felt like I was really making a contribution to the growth of something so new and...(to) so many people in need, which credit unions could really help....Probably those were the greatest feelings I came away with from that trip." Kohn, whose team visited Pretoria, Capetown, and Johannesburg in the course of their work, admitted being surprised by the development challenges of a SACCO system that is essentially regulated by an afterthought-actually an exemption-to a banking law, and which limits SACCO deposits to $1.5 million per institution. The Bank Act does not, however, make any regulatory distinctions among cooperatives, fund or field regulators for SACCOs, provide deposit insurance for them (or for banks), or extend any government "full faith and credit" legitimacy to a SACCO system struggling to distance itself from its less accountable roots as a village charity. "Everybody over there knows that the banks are regulated by the government," Kohn said of SACCO's marketing problem, "and even though they do not have deposit insurance over there, (they know the banks are) too big to fail, and their money would be protected. But they're not sure that they would get that same protection by putting their money in a credit union." Kohn noted, however, that the Bank Act does require SACCOs to register with the catch-all Registrar of Cooperatives, which then immediately imposes a federal tax on the cooperative. Most of the SACCOs, however, remain unregistered, Kohn added; although their league (and actual regulator), SACCOL, is registered. "We tried not to have any preconceived notions, but my feeling was, well, gee, 7,000 members. I could probably stand on the street corner of Johannesburg and get 7,000 members myself in one hour. But the more I learned, the more I realized that it's far more complicated and difficult than that. And there's a lot of good people that have made efforts up to this point to try to do something there. It's an extraordinarily complicated situation." Kohn, said a complex array of negative factors-from the confusing and counterproductive laws (opinion differs as to what happens to a SACCO when it reaches $1.5 million in deposits) to the dominance of the nation's four largest banks to the ignorance and distrust of SACCOs by the largely illiterate population-conspire to make cooperative finance a hard sell in South Africa. But he was surprised to find that, almost to a person, those who were treated to a proper explanation of cooperative finance became enthusiastic about it. "...there aren't that many people that know even that savings and credit cooperatives exist," Kohn explained. "But once you talk to people (and) get a chance to describe them, there's a tremendous amount of excitement, particularly with the unbanked population (which Kohn estimates at 40% of South Africa's 45 million population). They're looking for ways to try to lift themselves up by their bootstraps-and if they can do it together, then that's a very attractive option to them." And the South African banking industry, Kohn said, may actually be on the verge of promoting SACCOL's cause here, because political pressure is mounting in Parliament, in the ministries, and in special interest groups for something to be done about the country's unbanked masses. "They (the banks) wish to concentrate their efforts on the high-end market," Kohn explained. "At the same time they are under a lot of pressure to serve the low-end market (which they scorn). In fact there's even consideration in South Africa right now for the possibility of a CRA (community reinvestment act) over there." "So it's actually a very good time to be doing this," Kohn continued, "because there's a lot of sentiment for trying to find an option that is like credit unions. And they weren't necessarily thinking of credit unions. They were thinking of something that accomplishes what a credit union does...." But, partly because of the WOCCU mission, officials are thinking of SACCOs now-a fact which Kohn and company tried to capitalize on in two mission briefings/lobbying arts workshops they conducted for SACCO members before leaving. The occasion was also used to sound out members on their views toward key issues-and one of the things uncovered was that civic mindedness is so keen in South Africa, many did not want to pursue a tax exemption. A tax exemption, however, will be one of the recommendations WOCCU will include in its final report to SACCOL. "One recommendation is that credit unions should register with the Registrar of Cooperatives...," said WOCCU's Grace. "The other side is to go ahead and pursue a tax exemption. Furthermore, Grace disclosed that WOCCU's report also will recommend that SACCOs' deposit authority be increased-along a graduated regulatory scheme-above the current 10 million Rand ($1.5 million) cap, that CU-specific legislation be sought for the system, and that community CU charters be extended to those who "work and worship" as well as live in an area. "There's a strong sense of hope (in South Africa)...," Kohn said of his final impressions from his quasi-time trip. "There's also a great sense of frustration too, because you have two parallel universes....There's a very wealthy population alongside a very poor population. And the very poor population sees all this wealth. So it's only natural to be frustrated....But (change) doesn't happen overnight." -
gmcorrigan@mindspring.com
