Briefing by Co- operative Banks Development Agency on their quarterly report and issues emanating from their previous meeting with the Committee

Meeting report

Mr Z Mkiva (ANC, Eastern Cape) took over as Acting Chairperson for the meeting.

The Chairperson welcomed the Select Committee on Finance to a meeting with the Cooperative Banks Development Agency (CBDA) on their quarterly report and issues emanating from their previous meeting with the Committee.

CBDA Briefing

Mr Luyanda Ntuane, Chairperson, CBDA, said that the CBDA had progressed to be in a good position to fulfil its mandate within the ambit of the new entity housing the CBDA, the Small Enterprise Development Agency (SEDA) and the Small Enterprise Finance Agency (SEFA).

(See presentation for sector overview as at the end of February 2022.)

Mr Paul Rossouw, acting Managing Director, CBDA, said that the CBDA achieved all its targets and was financially stable. While there were challenges for the CBDA, he felt they were being dealt with in a reasonable way.

Annual performance 2022/23

Mr Rossouw highlighted overperformance by the CBDA regarding the number of partner and stakeholder relationships. The CBDA surpassed its target by 21 relationships. This was attributed to the various engagements, especially with SEFA, SEDA and the Minister of Finance, on plans to get the merger underway.

The CBDA reported an unqualified audit for 2021/22 and expected another for the 2022/23 financial year. Other areas of overachievement included the number of training programmes which surpassed the target by four. This resulted from Banking Sector Education and Training Authority (BANKSETA) funds which became available and additional training held during the 2022 Indaba.

The CBDA achieved 33 more interventions than the target for the number of direct technical assistance interventions. This was due to the effectiveness of virtual meetings and members from the central support team being moved to the capacity building team to support technical assistance and intervention at Cooperative Financial Institutions (CFIs).  

There was a decline in the number of monitoring visits because some coincided with the 2022 Indaba, which required much attention. The final three monitoring visits were caught up after March.

Financial highlights

The CBDA’s financial status was favourable. There was a decline in grant funding of 42 percent, following a request by SEFA that they are repaid funds which they needed themselves. The CBDA had satisfactory financial performance with a surplus of R6.1 million. Seventy-four percent of the budget was utilised, with most of the funds going towards administration.

Underspending of 26 percent was attributed to the effectiveness of the combination of virtual and physical meetings, delays in procurement, additional vacancies which were not filled pending the merger and the use of grant funds for conducting training.

Request to provide updates on police cases

There was one case of collusion between two CBDA staff members and a National Treasury (NT) staff worker who stole R2.3 million through bogus training and accommodation requests. The incident was reported in 2020 and an investigation started. There were no new updates on the case. However, the CBDA continuously contacted the NT which was following up on the case.

Human resources

The CBDA had three vacancies for positions of Board Secretary and technical assistants. The CBDA was in the process of employing five temporary staff members to assist in clearing out the store room in preparation for the merger.

(See presentation for the services offered in capacity building.)

Merger between CBDA, SEDA and SEFA

Many meetings have been held between the entities since July 2022 in a process facilitated by the Government Technical Advisory Centre (GTAC).

In essence, the mandate of the CBDA would be carved out of the Cooperative Banks Act (COBA) and placed in the National Small Enterprises Act (NSEA). After the merger, the Prudential Authority would be the sole custodian of the COBA, reporting to the Minister of Finance. The responsibilities of the CBDA in terms of the COBA would be carried over to the NSEA, reporting to the Minister of Small Business Development.

In December 2022, the draft business case was submitted to the NT for concurrence. The Socio-Economic Impact Assessment System (SEIAS) certification was submitted to the Department of Planning, Monitoring and Evaluation (DPME) for approval, after which it would be submitted to the Economic Sectors, Investment, Employment and Infrastructure Development (ESIEID) cluster for recommendation to the Cabinet.

The CBDA expected parliamentary processes to begin before the end of June 2023. The CBDA would move as a specialised unit within the new merged entity, due to its specialised nature.

The CBDA planned to open a second cooperative bank before the end of the year. A group was formed from CFI representatives from at least five provinces. The members of this bank would be primary CFIs and cooperative banks.

The second cooperative bank would not be seen as competition with primary cooperatives. Instead, it would endeavour to provide payment systems, internet banking, mobile services and consultation services, especially concerning accounting standards.

The CBDA recently had a meeting about the business case with the sector. It would be drafted soon and it was expected that the application to register the second cooperative bank would be sent to the PA before year-end.

See attached for full presentation

Discussion

Mr M Moletsane (EFF, Free State) asked when last the CBDA had followed up on the police matter and why no one had been arrested or charged yet. He asked whether the staff members had been suspended or dismissed.

Ms D Mahlangu (ANC, Mpumalanga) raised a concern that the documents for the meeting should be made available timeously.

She asked for clarity on the grant funding used for training. She inquired whether waiting to fill vacancies created difficulties as the merger would only be completed early next year. She asked about the progress of disciplinary cases.

Ms L Moss (ANC, Western Cape) noted that the CBDA was planning to hire workers on an ad hoc basis. She asked whether this was budgeted for and whether they made use of labour brokers. 

Mr W Aucamp (DA, Northern Cape) said he appreciated the progress made by the CBDA since the last meeting.

The Chairperson asked how far the merger process was and whether there had been sufficient communication to explain the reason for the delay. He asked how the delayed merger had impacted CBDA operations and whether there were challenges. If so, how had the CBDA planned for operations to continue smoothly?

He asked the CBDA if they had any other concerns related to the merger, particularly in meeting the needs of underserved communities. He questioned how the CBDA would benefit from the merger.

He explained that he had these concerns as it was vital that institutions had an impact at local levels, especially in impoverished communities. The CBDA would help many of the previously unbanked citizens of the country. Concerns about access and finances needed to be addressed to ensure transformation.

The Chairperson commended the successes and areas of overachievement by the CBDA.

Responses

Mr Ntuane responded, on the impact of restructuring on executive functions, that the merger announcement occurred when the CBDA was at the tail-end of recruiting a permanent managing director (MD). The timelines for the merger were aggressive at the time and it was not viable from a human capital or economic perspective to make a permanent appointment.

The CBDA appointed a temporary MD to assist in driving the CBDA mandate while navigating the merger timelines. This created difficulties for the CBDA as they were not able to recruit based on the organogram developed previously.

The Board gave permission to management to continue the appointments to critical positions. This ensured that the working groups established in the merger process had continuous dialogue and that employees were not disadvantaged.

Regarding the police case, the CBDA had expressed concern that there had been very little activity in finalising the case.

Since 2021, staff vacancies have made it difficult for the CBDA to navigate the merger. The Board had empowered management to ensure that critical positions were filled. The CBDA has done this on a case-by-case basis for the past two years. This was not due to a lack of budget. Rather, it concerned timing and positioning the recruitment in such a way as not to duplicate efforts during the merger.

He highlighted the robust engagement driven by the Minister of Small Business Development regarding the merger. The CBDA was fully invested in the merger process and was represented at various levels of the merger’s governance structures. This went from working group levels right through to joint operations forums convened by the Minister of Small Business Development.

The CBDA was exploring interim measures to ensure the speedy transition of the merger. He appreciated that there were legal implications regarding current operations and positioning of the various institutions.

Concerning delayed operations, he felt that, as shown by the performance reports, the CBDA had navigated its way forward. The CBDA welcomed the merger. By leveraging the network capacity of the SEDA and the SEFA, the CBDA would have a presence nationwide. This would have a significant impact on addressing accessibility challenges. Leveraging resources, would enhance the CBDA’s ability to deliver on its mandate.

Another benefit of the merger would be a concentration on cooperative banking which was not diluted in a broader discussion about cooperatives.

Mr Rossouw explained that the police case was referred to NT as one of their workers was primarily involved in the matter. However, all three people were charged on the same sheet. The police lost the annexures which had to be resent. The initial officer for the case resigned and another officer took over the matter. The CBDA followed up on a regular basis. He had contacted the NT two weeks ago for an update. NT said they had not yet received positive feedback from the police. However, they were trying on a continual basis.

Regarding the grants for training, he explained that the training was not for employees. It was specifically for the boards of CFIs and any training that would be beneficial for the sector as a whole. The CBDA used grants for training as opposed to setting aside its own funds.

Two disciplinary cases were outstanding. There had been challenges and the SEFA, as an independent body, had offered to assist with the process.

The ad hoc workers would be employed on low-pay six-month contracts to go through the filing systems and other ad hoc matters. The CBDA did not make use of labour brokers for this.

He noted that CBDA planned to finalise half of the matters concerning fruitless and wasteful expenditure by the end of May. The CBDA would have a special audit committee meeting and a board meeting to decide at least seven historical matters. He was unaware of any fruitless and wasteful expenditure during the past year. There was one case of non-compliance involving the auctioning off of computers rather than giving them to the education sector.

Ms Nontobeko Lubisi, the Finance Ministry's shareholder representative on the CBDA Board, referred to delays in implementing Cabinet instructions. Human resources was a key issue that had to be factored in correctly before moving the CBDA to the Department of Small Business Development.

Another cause of delay was the need to develop comprehensive legislation for the new entity and other finance institutions. It was necessary to prevent the potential impact on existing institutions down the line.

Mr Rossouw said that the staff involved in the fraud case immediately resigned when the case was reported to the police.

The Chairperson said that the new instruments created by the merger would go a long way in ensuring that funeral parlours, burial societies and stokvels in rural areas played a meaningful role in the financial mainstream. The merger would empower these businesses and enable them to grow. This created a sense of urgency about the matter. He offered the services of Parliament to help expedite the process.

The meeting was adjourned