There are unbelievable advantages when large groups of people come together to save and invest money. Communities have been organising themselves together since ancient times to acquire assets and start businesses.
A case in point is people of Indian descent (Indian and Pakistani nationals). It is well known that they tend to stay together in large numbers in one home to consolidate their wealth and start businesses. When going to a new country, it is not unusual or uncommon to find a group of about 10 people staying in one house or apartment and saving their financial resources till they can start a business. The arrangement will continue until all of them have anchored themselves financially, ultimately resulting in economic domination in their chosen areas.
Another group that managed to self-organise successfully is the esteemed Afrikaner nation of South Africa. The Anglo Boer war, which started in 1899 and ended in 1902, completely devastated the Afrikaner nation. Many women and children died in terrible conditions in concentration camps set up by the British. To make matters worse, several were left financially vulnerable and outright poor by the war. To turn around their fate would require extraordinary discipline, tactical skill and moral purpose. It required strength in numbers to improve their financial fortunes. One of the leaders that emerged and played a key role is Joseph Jacobus Bosman. His visionary leadership led to the formation of the Volkskas Cooperative Bank circa 1934. The Bank started as a Cooperative Bank, but very soon evolved into one of the most trusted financial institutions until it was amalgamated into the Absa Group in the 90’s.
Cooperative/community banking is a form of banking where communities come together to pool their savings to strengthen their individual and collective financial standing. People who want to start a cooperative bank must share a common bond which could be geographical, work based or associational. Examples of a common bond are that members must either stay in the same area, or they must all be working for the same employer or be a part of the same association (i.e. unions, churches, sports bodies and so forth).
A cooperative bank differs from retail bank in many respects. Firstly, retail banks have a pure profit motive whereas a cooperative bank is run by members for the benefit of members. Secondly, there is a large element of trust between the members of a cooperative bank. When a member requires a loan, others would be able to vouch on his/her character. This is contrary to the large retail banks that only look at affordability and the records kept by the credit bureaux in order to grant you a loan. Interest rate charges against loans taken out from a well-run and resourced cooperative bank or CFI (Cooperative Financial Institution) are also far lower than that of retail banks or micro lenders. Anecdotal and empirical evidence abound of members of cooperative banks or CFIs obtaining loans at very competitive rates to buy land, equipment and cars compared to had they taken these loans from retail banks. A case in point is how a CFI in Centurion offered one of its members a loan to buy a vehicle. The interest rate was so low that the repayment to the CFI was only 3 years as opposed to 5 years that it would have taken through normal retail bank vehicle financing.
In addition to the easy way of getting credit and the very low interest rates that members pay back, other benefits include:
- Getting a higher interest rate from your savings compared to retail banks
- Knowing that your money is safe. The cooperative banking sector is regulated by credible entities such as the CBDA (Cooperative Bank Development Agency)
- Education and counselling on how cooperative banks work
The reasons consumers benefit immensely from progressive cooperatives are simple; firstly cooperatives are run by members for the benefit of members, secondly, they do not pay exorbitant salaries and bonuses to staff and lastly, cooperatives exist purely for the benefit of helping members.
It is unfortunate that there are currently only about 20 CFIs and only about 2 cooperative banks in South Africa. This shows that a large number of consumers are missing out on the benefits that only a cooperative bank/financial institution provide.
You are urged to visit these agencies websites to find out whether there is a CFI/cooperative bank in their local community and join or establish one immediately.