Z Mkhize: Co-operative Microfinance Workshop gala dinner

4 December 2006

Programme Director,
MEC for Agriculture and Environmental Affairs, Mr ME Mthimkhulu,
Dr Mjwara, Head of the Department of Agriculture and Environmental
Affairs,
Senior government officials present,
Mr Ada Kidor, Chief Executive Officer of the International Co-operative
Alliance (ICA),
Mr Mandla Buthelezi, National Farmers Union (NAFU) President,
All members of ICA present,
Financial co-operatives representatives,
Financial service co-operatives representatives,
Members of community-based organisations (CBOs),
Members of the media,
Honoured guests,
Ladies and gentlemen,

May I begin by congratulating the organisers for co-ordinating this all
important Co-operative Microfinance Workshop. It is a pleasure and a privilege
to share this occasion with you.

One of the primary objectives of the co-operatives programme not only in
KwaZulu-Natal, but South Africa, is to contribute to the creation of
sustainable communities through promoting food security and basic income
opportunities. I am determined that the co-operatives programme in this
province will be a success. Ladies and gentlemen, this determination is not
only shared with my colleague the honourable MEC Mthimkhulu, but by our entire
Cabinet. The government of KwaZulu-Natal has endorsed the policy on
co-operatives as a vital element of the province's poverty alleviation and
economic alignment strategy.

And we are determined that this is the key to us achieving economic growth
with broader participation in the economy.

I don't have to tell the delegates here how co-operatives have been
successfully used in developing countries as building blocks of community
development.

Our objective through the co-operatives programme in KwaZulu-Natal is to
place an emphasis on supporting the poor, who through our history of apartheid
are locked in the vicious cycle of poverty. Ladies and gentlemen, this
government is constantly exploring various strategies of extricating them from
poverty. This we have not done alone but together with our people, some of whom
are in this room today. We have adopted what we call the stepwise rise to
prosperity through the co-operatives programme, to address these needs.

Since we launched the co-operatives programme last year more than 4 000
primary and 10 secondary co-operatives have been established in KwaZulu-Natal.
Most of the co-operatives in this province are in rural areas. More than 50
percent are based on agriculture, and owned and managed by women. The sectors
we're promoting in the co-operatives programme are agriculture, clothing and
textiles, arts and crafts and tourism. We're encouraged by the interest and
commitment shown by the ordinary people of this province towards the
co-operative's programme. This clearly shows that with an enabling business
environment created, people will grab the opportunity with both hands.

There are, however, challenges that we're grappling with in the roll out of
co-operatives.

Training and skills development is inadequate in areas. There's a need for
the training of people to manage co-operatives and the acquiring of skills
necessary to provide the services that their businesses offer. Another concern
is the duration of training. Co-operative members need to continue to learn as
their businesses grow because the intention is that these co-operatives would
eventually graduate to small, medium and micro enterprises (SMMEs). The
management of interpersonal relationships is an issue that must be addressed
because it has been the cause of co-operatives collapsing because of the
dynamics between individuals. Poor administration skills must also be attended
to because we want to invest very significantly in training programmes to
sustain the co-operative movement.

When it comes to access to finance we've taken steps for people to get
access for their co-operatives. Again the challenge is the ability to provide
sound business plans. On the other hand financial institutions have not quite
bought into the support of co-operatives as we would like them to. Therefore
co-operatives still requires government intervention which we provide through
Ithala Development Finance Corporation and also the Apex Fund and the Micro
Agricultural Finance Institutions of South Africa (MAFISA), which I will talk
about more. The challenge we've found is that that funds that government has
made are not adequate for the demand for co-operatives. Thus it becomes very
important for financial institutions to support this sector in business. If we
want to meet the objectives of achieving broad-based black economic empowerment
(BBBEE), creating jobs and growing the economy, then things have to change.
Even the issue of supply chain management must be embraced by both government
and big business as our joint contribution to the growing of this sector.

Another concern for us is that co-operatives tend to lose out when it comes
to making profit because production costs for would-be competitors are often
better. On these bases we've embarked to create secondary co-operatives because
then co-operatives with similar interests would benefit from the bulk buying
opportunities this presents.

We say that if a person lives in a rural area, then business economic
opportunities must become available there. Those days of people having to go to
the cities to earn a living are over. In KwaZulu-Natal we have beautiful land
which can be cultivated for crops; people in rural areas also need food,
clothing, books and transport. In other words the potential for business is
already there. What you may ask is government doing to assist co-operatives in
these areas? Well, let me tell you.

The Apex Fund

The Department of Trade and Industry established the South African Micro
Finance Apex Fund (SAMAF) as a vehicle to address poverty and unemployment. The
fund was launched nationally last year and we launched in KwaZulu-Natal in July
2006. SAMAF is government's intervention to activate and energise microfinance
in remote, rural and poor urban areas in line with Millennium Development Goals
(MDGs) celebrations of the United Nations (UN) year of micro credit and the
50th celebrations of the Freedom Charter.

The Apex Fund works through partner organisations such as Financial Services
Co-operatives (FSCs), to carry out its mandate to reach the target at as close
a local level as possible, for impact and outreach. I will talk about these
FSCs a little later. The Apex Fund aims to achieve its target through
affordable access to financial services, institutional and client capacity
building and savings mobilisation.

1. Affordable access to finance for many co-operatives and other business is
through the Apex Fund's Micro Credit Loan Fund. This programme provides for
loans of up to R10 000 to households and micro-entrepreneurs who depend on
these micro enterprises for their livelihood. This fund comprises two
products:

* micro credit for micro enterprise development
* the poverty alleviation fund for clients whose household income is less than
R1 500. The partner organisation will use a poverty targeting tool for
assessment.

2. Institutional capacity building under this programme's funds is provided
to strengthen the institution and ensure its long term sustainability.

3. Savings mobilisation, this serves to promote and encourage the creation
of financial co-operatives and other indigenous savings establishments such as
stokvels and burial societies for the accumulation of locally owned and
invested wealth.

Micro Agricultural Finance Institutions of South Africa (MAFISA)

Again with the rural communities in mind, MAFISA was established.
Agricultural microfinance is defined as finance required for developing
economic activity in profitable business operations. As a guideline these
businesses usually (but not necessarily) have a turnover of less than the Value
Added Tax (VAT) threshold of R300 000 per annum.

The MAFISA idea is to empower micro level producers, processors, working
poor, micro-entrepreneurs and emerging farmers. The Land and Development Bank
(LDB) works as a partner with MAFISA on their pilot projects in various
provinces, one of which is KwaZulu-Natal. The others are Limpopo and the
Eastern Cape.

The weakness of both the Apex Fund and MAFISA are limits on the amounts that
businesses can borrow. We recommend that this allocation must be augmented and
its management devolved closer to the communities. Both funds have tremendous
potential to act as catalysts for local economic growth.

Financial Services Co-operatives (FSCs)

As I mentioned the FSCs earlier, may I spend a few seconds elaborating on
them? We are working on forming FSCs around the province. FSCs are cost
efficient structures through which high quality and affordable financial
services are made available to communities and societies who usually have
limited or no access to mainstream banking services provided by registered
commercial banks in the country. FSCs are member owned and controlled
co-operatives, which provide readily available and safe financial services in a
community.

There was a time when KwaZulu-Natal had 23 FSCs spread across the province.
These FSCs were started by the two companies FinaSol and Financial Services
Association (FSA). Both FSA and FinaSol encountered problems which led to their
demise in the year 2002. The members/shareholders of the FSCs then decided to
continue despite the gap in the supervision and regulation. Because of lack of
support and monitoring system 19 are no longer in operation and the National
Treasury has appointed the Deloitte and Touche company to formally close them
down, and the members to be reimbursed their savings. For the FSCs that have
survived closure, the National Treasury has appointed SAMAF to temporarily
regulate them until a formal regulatory body is appointed by the South African
Reserve Bank (SARB).

Currently there are four FSCs that have survived closure and these are:

1. Ngwavuma FSC at Ngwavuma which is doing well and just broke even
recently
2. Eyethu FSC at Nquthu which is struggling and operating at a loss
3. Sizathina FSC at Ixopo is also operating at a loss but has potential
4. KwaMachi FSC at Harding which is managing to grow despite the existing
problems.

The products of FSCs include savings accounts, investments,
transfers/pension payouts and loans.

Age of hope

When Minister of Finance, Mr Trevor Manuel, tabled the Medium Term Budget
Policy Statement he said, "South Africa is in the midst of its longest
sustained economic expansion. Robust economic growth supported by strong
consumer spending and rising investor confidence has created over one million
jobs in the past three years. While unemployment remains our most pressing
social and economic challenge, for the first time in a generation, the economy
is creating jobs faster than new entrants are joining the labour force. Though
it is too early to claim victory in the battle against unemployment we can
already see how growth and development work together to reduce poverty and
improve livelihoods, how the policy choices we made a decade ago are bearing
fruit."

Our people have good reason to live in an age of hope. We as government are
creating an environment that's conducive to broader economic participation and
we are encouraged to continue because of the response we get.

I want to further encourage you today to continue your dialogues and
discussions about this co-operative movement that is certain to turn poverty
and unemployment around. I wish all delegates at this Co-Operative Microfinance
Workshop well.

Thank you!

Issued by: Department of Finance and Economic Development, KwaZulu-Natal
Provincial Government
4 December 2006
Source: KwaZulu-Natal Provincial Government (http://www.kwazulunatal.gov.za/)