When it comes to the thorny issue of how to boost economic development in the townships, banks and government need to move beyond current models to a whole new way of thinking about the challenge. They can start by observing what is already working on the ground.
There is an overused proverb that says ‘Give a man a fish and you will feed him for a day; teach a man to fish and you will feed him for a lifetime’.
It’s a noble idea of course. But does it always work? What if the marine regulations where the man lives prohibits fishing in his area? Or stipulates that you may only catch one type of fish, using a rather expensive type of rod? Sometimes the best intentions are not enough.
When it comes to the issue of how to finance economic development in low income settings, there are no shortages of examples of good intentions gone awry. In fact, says UCT Graduate School of Business (GSB) professor Nicholas Biekpe, too often the intention of empowering the poor ends up further boosting the wealthy.
Speaking at a recent forum hosted by UCT’s Graduate School of Business MCom in Development Finance programme and the Chartered Institute of Development Finance (Cidef) on the issue of financing economic development in South Africa’s townships, Biekpe said that since biblical times, the ideal held up is that money flows from the rich to the poor. However this principle is all too often inverted with contemporary corporate solutions. For example, while building a large supermarket in the middle of a township may, at face value, appear to be a poor-friendly initiative, in fact it means that more money then flows from poor to rich. The poor may have a handy place to shop, a few may even have jobs, but this is hardly a motivational long-term solution for pioneering growth in township economies. Instead of incubating growth and innovation within the community, most townships tend to be consumer-based, with inhabitants leaving each day to make money elsewhere and what money they spend in the townships is often cycled back to corporate headquarters elsewhere.
Banks, government, NGOs and the private sector are scrambling to find solutions that achieve the opposite: boosting innovation within townships to create more local jobs, opportunities and wealth. But progress is slow.
In the banking arena the balance between making profits vs meeting development criteria remains precarious. Financial institutions do encourage communities to save, but only through the banks’ existing formal structures, which are often impractical for the real needs of poorer communities, that require greater flexibility and support. Although some banks do come up with initiatives to support generating income within township communities, they are bound by their own regulations to protect their own interests first and foremost.
Government interventions come with other frustrations. Organisations such as the Small Enterprise Development Agency (SEDA) and the National Youth Development Agency (NYDA) have been working on developing a township economy for some time. And although grants for small businesses are available, the application process is tedious. An application must jump through many hoops before it is approved. To sustain enthusiasm for the project requires enormous persistence from the entrepreneur, who risks rejection at any turn. Meantime, the opportunities may have moved on by the time they get the funding.
Although Government policy recognises a need to correct the situation, growth from developmental loans tends to be slower than from other more lucrative assets, which diverts the fiscal focus towards more tangible investments that perform faster. Systems are often clumsy, with frequent duplication of mandates, making this a potentially sluggish area of focus. To become more efficient across the full spectrum of this sector, government players must coordinate and streamline policies. But how?
A potential solution may already be in place.
Left to their own devices in a very real sense, the poor have evolved their own systems of saving and financing in the form of stokvels that could hold the key to building a more robust township economy. These informal savings clubs evolved because products in the formal sector simply do not meet poorer peoples’ needs – and they are widespread in township economies. The National Stokvel Association of SA estimates that about R45bn is held in about 800,000 stokvels around the country. These tend to be built on trust and community values and are as much a social strategy as a financial instrument. Governed by contributors, with both profit and risk shared, the group decides on a goal and the rules for savings. Their success lies in their freedom and flexibility and in their ability to offer people direct control over their savings.
Given the banks’ reluctance to provide conventional finance to poorer communities and the long and tedious process requirements when it comes to development loans, the stokvel system is well placed to help solve part of the problem. If carefully managed, stokvels could be scaled up and linked to provide one cohesive covered financial institution, which would enhance the accessibility of funds and provide a viable and speedy financing alternative for small business loans. Naturally it would require strong regulation, administration and protocols, but with the savings structure already working in communities, there is a real opportunity to create a vibrant resource that brings more people into the fold.
Professor Biekpe says that with these kinds of solutions in mind, financing economic development in the townships does not mean thinking out of the box, it means throwing the box away, because for the most part, the box does not offer a viable fit for this economic sector. “Current banking regulations do not support or relate to the reality of township living, where there are no bank branches or ATMs and where the inhabitants have neither the assets nor the debt required by banks for loans of any sort,” he says.
Similarly when it comes to government interventions, although some inroads are being made in this arena, it’s clearly not enough. Policy makers need to get their hands dirtier and develop a grassroots understanding of the challenges faced by this sector from the ground up. Encouraging vibrant township economies, whether on a micro or macro scale, does not involve a top down imposition of corporate formulae and rigid regulation. Nor is it about teaching and mentoring entrepreneurs how to qualify for, and comply and align with middle class systems; white-collar decision-makers proposing solutions for issues they do not fully understand.
Instead, it is about listening; about finding and enabling innovative and viable solutions for real challenges; about upskilling township residents and assisting with platforms that encourage self-reliance and the spirit of community-based entrepreneurship.
To create wealth in poorer communities it is possible to streamline and enhance innovations that have evolved organically into powerful vehicles for growth.
As Lefentse Radikeledi, director of development finance institutions at National Treasury and one of the speakers at the GSB forum noted, South Africa needs to move away from the idea that development and development funding mean loss making.
Date: 6 May 2016
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