The recognized voice of reputable micro financiers

1
(No Transcript)
2
The recognized voice of reputable micro financiers
3
BANKING ENQUIRY

• 3 November 2006
• Red Room, Ground Floor, Commission Offices,
  Pretoria, South Afica

4
Presenters

• Hennie Ferreira CEO MFSA
• Mark Seymour Chairman MFSA Board
• Board Member MFRC
• (2003-2006)

5
Content

• Who is the MFSA?
• What do we do?
• History Traveling the NPS Road
• Living on the wrong side of the NPS fence
• Challenges for the future

6
Vision MFSA ensuring a sustainable Micro Finance
Industry. Mission Promoting the interests of
all members (MFI's) and their clients through
continuous - Advocacy - Creation of
development and growth opportunities,
and - Facilitation of member interactions
7
Nedbank Business Auditors PriceWaterHouse
Coopers Company Registration number
1996/001116/08 1400 Registered members
8
Relationships

• Dept Trade and Industry (DTI)
• Dept of Finance (Treasury)
• Bankseta
• SA Reserve Bank
• Payment Association of SA(PASA)
• Payment System Stakeholder Forum (PSSF for EDO)
• Credit Information Ombud / Credit Bureau
  Fraternity (World Congress)
• Credit Industry Forum (CIF)
• Banking Association
• Finmark Trust / FinScope

9
Relationships

• Centre for Microfinance UP Graduate School of
  Management (Centre for Excellence)
• National Advisory Council for the GMA Programme
• National Credit Regulator (NCR)
• Financial Services Board (FSB)
• Institute of Banking (IOB)
• BMFA
• MEA
• Harvard Business School
• ACCION
• Impumelelo
• Johannesburg Chamber of Business/ Soweto Chamber
  of Business
• International Monetary Fund
• International Finance Corporation
• Woman in Finance

10
(No Transcript)
11
(No Transcript)
12
(No Transcript)
13
(No Transcript)
14
(No Transcript)
15
History getting to the right side of the NPS
fence

• 1995, 1998 Report on the Micro Lending
  Industry Prof Piet du Plessis
• 1999/2000 Court Cases i.r.o Payment
  Solutions (Card Pin)
• 2000 Examination of Cost and Interest
  Rates in the small Loan Sector (ECI)
• 2001 Perago Rapport
• (MLA Funded Research)
• 2003 Tim Store- Payment Solutions for
• non- banks (SARB driven)
• 2004 PASA Steerco Johnny Pienaar
• 2005 National Credit Act (34/2005)
• Preferential Debits outlawed
  cont

16
History getting to the right side of the NPS
fence

• 2006 18 September EDO Launch
• - EDO is part of a journey not a
• destination.
• - Pricing is not finalized even after launch
• - Cost of managing insufficient funds
• concerning.
• - Rush to Payroll deductions (Preferential
• arrangement). Harmonization of all
• relevant legislation required.
• - Accounts excluded.

17
Preferential debits

• Almost every Housing Microlender (HML) will
  confirm that his number one regulatory problem
  over the past several years has been preferential
  debit orders.
• Preferential debit orders do inordinately
  impact HML lenders and raise their risk of
  collection, certainly relative to the banks that
  have controlled the debit orders.
• (Causes of Default among low-income housing micro
  loan clients Report backed by RHLF, NHFC,
  FinMark Trust DBSA, TransUnion)

18
South African National Payment System Framework
and Strategy (Blue Book)

• Primary Goal of the NPS is
• To enable the circulation of money
• This goal emphasis the fact that the NPS is an
  enabler of
• economic activity. It provides the conduit
  essential for
• effecting payments, domestically and
  internationally.
• The NPS is a critical component of the financial
  system,
• which enables the transfer of money and supports
• economic activity throughout South Africa.
• In this sense, the NPS contributes to and is a
  prerequisite for
• a sound financial system.
• (pg 20 pt. 2.1)

19
Vision

• The NPS is open
• The payment-service business is perceived to be
• open to both local and foreign participants that
• wish to provide payment services to customers.
• Participation is qualified by equitable
  risk-based
• and other entry criteria and adherence to
  accepted
• codes of conduct
• (pg 21 pt 2.3.5)
• .cont

20
Vision

• The NPS is a National Business Asset
• The NPS is recognized by the business community
• as a national asset, supporting the emergence of
• South Africa as a global player in international
• financial markets and as the regional financial
• centre
  (pg 21 pt 2.3.7)
• The NPS is easily accessible
• Individuals and businesses wishing to make
• domestic and international payments have access
• to the NPS in all areas of South Africa.
• (pg 21 pt 2.3.8)

21
Fundamental Principles

• - The provision of NPS services is
• not the exclusive domain of banks
• - The role of non-bank institutions in the
• provision of payment services to their
• customers is formally recognized in the
• NPS.
• (pg 26 pt 2.5.2)

22
Fundamental Principles

• The evolution of the NPS infrastructure is a
• co-operative responsibility
• The payment-service infrastructure is crucial to
  the smooth functioning of the whole economy.
  Banks, the SA Reserve Bank and customer
  payment-service providers will co-operate in the
  design, implementation and management of
  infrastructure components.
• To facilitate effective and open participation by
  all banks on equal terms, the ownership of the
  infrastructural components will not impede the
  utilization thereof by any participant.
• (pg 26 pt 2.5.3)
• cont

23
Fundamental Principles

• A balance is maintained between risk
• reduction and cost
• The cost of risk-reduction strategies should in
  all cases be justified in terms of the potential
  systemic risks that they aim to address.
• (pg 26 pt 2.5.6)
• SA Reserve Banks response to a problem in the
  NPS will be in the interest of the system, not
  individual participants
• (pg 26 pt 2.5.7)

24
(No Transcript)
25
Living on the WRONG side of the NPS fence

• Small size does count
• Non Bank
• New entrants in the SA Financial Services world
  (Dominated by Big Players)
• Innovative (Risk?!)
• Offer competition for wallet share with Banks
• Business aiming to serve the 2nd economy
• Being a consumer in the 2nd economy
• costs of Insufficient Funds

26
Cost
MargIn
MargIn
Unravelling the Cost
27
Cost
MargIn
MargIn
Unravelling the Cost
28
Cost
MargIn
MargIn
Unravelling the Cost
29
Cost
MargIn
MargIn
30
?
B.O.P Who Carries the Load?
31
ABC of Collecting
32
Consequence of Current Situation

• Consumers in 2nd economy
• - Complicated pricing
• - Costs of transactions
• - Disincentive to save
• - Disincentives to optimally use
• electronic systems e.g. transfer
• - Consumer continue to use cash
• despite security risk and convenience

33
Consequence of Current Situation
cont

• Small players in 2nd economy
• Banks stand at a competitive advantage due to
  ability to differentiate pricing
• Small credit providers at competitive
  disadvantage due to high pricing
• forcing credit providers out of the market
• Margin squeezed (under price caps)
• Live with set expense on Payment System.
  (take it or leave it)

34
Consequence of Current Situation
cont

• Micro Finance Industry
• - Stunted growth and diversification
• of Industry
• - Limitation to offering Professional
• Services
• - Clever electronic / other solutions
• Card Pin, Preferential Debits,
• Ghost Bank accounts,
• Internet Password Disclosure to lender
• - Low investor interest

35
(No Transcript)
36
Challenges for the future

• Truly subscribe to principles of neutrality in
• - Governance
• - Strategy development
• - Co-operation with non-banks /
• smaller player
• - Pricing
• - Market conduct
• Ensuring needs of MFI are met as the market
  develops
• - 4 million clients
• - Growing and specific needs
• cont

37
Challenges for the future

• Act in the interest of all South Africans
• No conflict of interest between owner and
  participant of system

38
Considerations

• Credit providers need to be able to submit into
  Bankserve, or
• A non-competing/participating alternative
• If access only through banks, then at cost.

Bottom line Separate ownership and participation
in NPS!
39
Thank You
40
The recognized voice of reputable micro financiers
41
(No Transcript)