Corporate citizenship in the context of the financial services sector: what lessons from the Financial Sector Charter?

Abstract

This article argues that the introduction of the Financial Sector Charter (FSC) in South Africa is an important innovation in terms of creating a framework for the sector to promote corporate citizenship. If implemented in its totality, the FSC promises to make a significant contribution to the transformation of the sector. However, on the basis of performance to date, the authors raise concerns about the prospects of the FSC being instrumental in this transformation. They suggest that the sector risks missing the valuable opportunity it has generated for itself. The lack of progress also raises the fundamental question as to whether transformation in the financial services sector can really be achieved on the basis of the model of self-regulation as embodied in the Charter.

1. Introduction

In the past few years, the discourse on corporate citizenship has become part of the global agenda for sustainable development. This arises from a growing realisation that the future of business cannot be guaranteed unless it recognises and acts on its social, economic, cultural and environmental obligations. The United Nations Agenda 21 (UN, 1992) has emphasised that ‘human beings are at the centre of concerns for sustainable development’. Thus corporate citizenship is a call for the business sector to recognise and accept that the sustainability of its operations also depends on the sustainability of society as a whole, and that it is therefore imperative that the sector should actively contribute to the welfare of broader society.

The financial services sector plays a critical role in promoting sustainable development through its financial intermediation. Increasingly, the process of financing business activities is being seen as a way to stimulate the business sector to control its broader environmental, social and economic impacts. The resources that flow through the finance sector provide the lifeline for economic activities. Any form of economic development, whether sustainable or not, must be financed through these financial markets. At the same time, the inaccessibility of financial services for both individuals and microenterprises is a fundamental impediment to progress towards sustainable development, particularly in Africa. The finance sector has tremendous influence on the move towards a sustainable economy through its role in allocating financial capital to various economic activities and various social groups.

In the context of the South African Government's efforts at effecting far-reaching social and economic transformation in the wake of apartheid, the finance sector has also become a prime target for black economic empowerment (BEE) initiatives. The financial services sector has been identified as playing a crucial role in this transformation through its financing activities. It has become increasingly clear, however, that the sector cannot continue to serve a minority of the population if it is going to be instrumental in this process. As noted in the BEE Commission Report (BEECom, 2001: 19, 23):

Market failures and continued racism in established business, particularly the financial sector, are among the major obstacles preventing meaningful transformation. Financial institutions have been geared to serve the needs of the minority white section of the population, resulting in a biased allocation of resources to the disadvantage of the black majority, particularly women. The industry has therefore failed to provide banking services to the vast majority of South Africans … Currently between 60% and 80% of the country's economically active population remains unbanked.

This article explores the progress that has been made in achieving transformation within the financial services sector in South Africa. It examines the performance of the Financial Sector Charter (FSC) since its implementation in 2003 and argues that its introduction in South Africa is an important innovation that creates a framework for the sector to help transform the South African economy, without government imposition of mandatory compliance requirements. If implemented in its totality, the Charter promises to make a significant contribution to the transformation of the sector.

However, whereas the FSC is indeed a comprehensive and relevant framework to facilitate this transformation, its implementation to date has been limited. This article points out that although there has been much praise and acclaim for the introduction of the Mzansi account (see Section 4.2), and although it is important that hitherto excluded communities now hold savings accounts, the broader needs of access to affordable credit and other financial services have not yet been adequately addressed.

Looking at the performance of the FSC in South Africa, the authors ask whether transformation in the financial services sector can really be achieved based on the model of self-regulation as embodied in the Charter. While proponents of the Charter argue that it successfully ‘adjusts the market framework so as to harness the energy of the private sector to achieve societal goals’ (Paul, 2005), this article questions the assumption that such business voluntarism is sufficient to achieve the goals of transformation. The key question that emerges, therefore, is whether the financial sector has made commitments that are beyond its capacity to deliver and whether the FSC's expectations of contributing to transformation are unrealistic.

The main objectives of the article are:

• to review the provisions of the FSC;

• to examine the extent to which the financial services sector is implementing the Charter; and

• to draw lessons from the implementation of the Charter to date.

The article provides an overview of certain provisions related to the implementation of the Charter, including the establishment of the Charter Council and the introduction of the Mzansi account as a cooperative response of the major banks in South Africa to the imperative of extending access to financial services.

The article is based on a review of the literature on the financial services sector in South Africa. Information for the article was gathered from various government policy reports and documents, individual bank publications and annual reports and publications by industry associations.

2. The debate on corporate citizenship in the context of the financial services sector

This section provides a background to the growing corporate citizenship movement internationally and specifically its implementation within financial sectors. It gives an overview of important international initiatives in the realm of corporate citizenship and corporate social responsibility and outlines the emergence of the South African government's policy for BEE.

2.1 Corporate citizenship and the financial services sector

The term ‘corporate social responsibility’ (CSR) is often used synonymously with ‘corporate citizenship’. Hood (1996: 196) argues that the basic idea of corporate social responsibility is that ‘business and society are interwoven rather than distinct entities; therefore society has certain expectations for appropriate behaviour and outcomes’. He also says that ‘the gist of the corporate social responsibility thesis is that firms should have responsibilities beyond those of economic self-interest and that they must balance profit-seeking and other social goals’ (Hood, 1996: 2).

The World Economic Forum, in its global corporate citizenship initiative, defines corporate citizenship as ‘the contribution a company makes to society through its core business activities, its social investment and philanthropy programmes, and its engagement in public policy’. It further adds that ‘corporate citizenship is not just a ‘nice to have’ but that it is about a core set of values and behaviour that mean that the business is a positive force in society’ (World Economic Forum, n.d.). According to the Initiative, corporate citizenship consists of the following integral components:

• treating employees fairly and equally and ensuring social justice in the workplace;

• safeguarding employee health and safety;

• minimising and preventing pollution and other negative impacts of business services or functions;

• responding to the needs and pressures of customers and clients in order to be sustainable; and

• promoting the protection of human rights.

A number of driving forces have compelled financial sectors globally, and the banking sector in particular, to incorporate environmental and social issues into their operations and to consider corporate citizenship more seriously within their core business practices. These driving forces include:

• regulatory developments, including South Africa's National Environmental Management Act (NEMA), which are seeing bankers being held liable for the environmental pollution caused by their clients;

• the setting of high environmental, social and governance standards by multilateral development banks;

• the adoption of similar high standards by private sector banks, as for example in the adoption of the Equator Principles (see www.equator-principles.com) by 23 leading international banks;

• increased stakeholder pressure and associated reputational risks as a result of civil society campaigns such as the Bank Track initiative in Europe (see www.banktrack.org) or the Rainforest Action Network's global finance initiative (see www.ran.org/ran_campaigns/global_finance/);

• governance failure in some financial institutions, which contributed to the loss of public trust that, between 2001 and 2003, impacted on global capital markets and destroyed corporate value in a wave of scandals;

• the realisation that environmental and social issues pose risks that affect the bottom line across the finance sector; and

• the concurrent realisation that the consideration of environmental and social issues in product development offers the potential to reach new sectors of the market and to realise competitive advantage over peers in the finance sector. (AICC, 2004: 10)

In addition to these driving forces, financial sectors are also facing new legislative developments at the national level designed to facilitate more responsible business practices within financial institutions. The financial services sector's approach to corporate citizenship has borrowed much from the experience of the United States, which initiated a comprehensive policy and legal framework on CSR for the sector. The Community Reinvestment Act (CRA) was introduced in 1977 as a mechanism to push banks to lend to low- and moderate-income communities. It was intended to provide a solution to the redlining practices of some financial institutions and was regarded as a quid pro quo for the federal subsidies the banks received from the below market rates of lending from the federal reserve system, for instance (Thomas, 2002). The Federal Reserve Bank was given powers to penalise those banks that violated the Act.

The CRA was introduced on the premise that financial intermediaries do not willingly reinvest in the communities in which they operate unless compelled to do so through legislation. The Act aims to create a win – win situation for both the banks and the communities by providing incentives for banks to invest not only in the physical capital of communities, but also in the economies of underserved neighbourhoods. It has been described by some as an example of fair market regulation, representing the ‘optimum balance between consumer and industry interests’ (Thomas, 2002: 3). Others, however, have criticised the CRA framework as giving government too much regulatory power, including the power to penalise banks for non-compliance (Paul, 2005).

Under the CRA, banks are required to disclose information about their community investment portfolio. They are also rated on performance and these ratings are taken into account in regulators' decisions on mergers and acquisitions. Enterprise awards have also been introduced to reward banks for improvements in reaching low-income neighbourhoods. In addition, compliance with CRA requirements allows banks and other financial sector organisations access to extensive government support (such as deposit insurance and the Federal Reserve).

The combination of emerging international conditions that are pushing financial sectors to recognise both the risks and opportunities associated with social and environmental issues and the development by national governments of legislative frameworks to incentivise investment in particular areas of the economy has made the financial services sector a key component of corporate citizenship thinking. This focus on the financial sector and the proactive role by governments in defining an increasingly developmental role for private financial institutions has important parallels with South Africa's experience to date in implementing BEE and the financial sectors' subsequent response in establishing the Financial Sector Charter.

2.2 Broad-based Black Economic Empowerment (B-BBEE)

The South African government has introduced a policy for empowering blacks as a way of redressing historical injustices and imbalances in wealth distribution as a result of the country's apartheid legacy. The policy for BEE emerged against the backdrop of increasing frustration with the slow pace of social and economic transformation and the recognition that voluntary initiatives by the private sector were not providing adequate results. As the BEE Commission noted in its 2001 report, ‘left alone, markets tend to reinforce existing distributions of incomes and assets … especially in the context of globalisation’ (BEECom, 2001: 6).

From the outset there were concerns–particularly among civil society groups and trade unions – that BEE was primarily about enriching a few well-connected blacks, an elite, without significant benefit to the country's poor. In response to this growing perception, there was a call by the public for more broad-based economic empowerment. Broad-based empowerment moves beyond a narrow focus on ownership change through shareholding to an equal emphasis on other areas of performance, including employment equity, skills development, procurement and management control and investment in black-owned enterprises (Meintjies, 2004). This more comprehensive framework was concretised in the South African government's Broad-based Black Economic Empowerment Act, which was passed in 2003 (RSA, 2004).

Although B-BBEE was developed as a process independent from CSR, it has important parallels with the goals of corporate citizenship initiatives, in terms of encouraging business to conduct its activities so as to achieve broader social goals as well as ensuring financial profitability. The experience of B-BBEE in South Africa also provides invaluable insight into key questions related to corporate citizenship thinking. How can government, business and civil society collaborate in order to achieve the desired outcomes – in the case of South Africa, transformation of the economy? What is the optimal balance between government prescription of corporate behaviour and business voluntarism? To what extent can business, considering its primary objective of generating profits, be relied on to affect transformation of the economy?

3. Review of the key provisions of the financial sector charter

The Financial Sector Charter, which committed the sector to the government-legislated policy of BEE, can be viewed as an important milestone in the history of South Africa. As mentioned above, the finance sector became a prime target for BEE because for many years formal financial services were not accessible to the millions of blacks in the country.

The BEE Commission, which was established by the South African government in 1998, released a report in 2001 which made a number of recommendations for the financial sector, including the introduction of community reinvestment (CR) legislation. The overview of the proposed legislation included stipulations ‘forbidding discrimination in lending, providing for disclosure of lending information, agreeing on targets for extending services and finding mechanisms to use CR Act ratings when a bank requires regulatory approval’ (BEECom, 2001: 27).

Following the BEE Commissions recommendations, the Housing Ministry in mid-2002 tabled the Community Reinvestment Bill, which provided for minimum targets in banks' lending to low-income households, with criminal sanction and fines as an enforcement mechanism. It required ‘reasonable justification’ for any variation in ‘credit terms, including amount, interest rate, duration and type of home loan’ (RSA, 2002: 5). The finance sector reacted with concern to the proposed legislation: ‘There is a high degree of concern at the amount of discretionary power the bill will give the minister in prescribing the conditions that financial institutions must meet without any form of appeal’ (Gebhart, 2002: 1). Industry's concern with the bill centred on the bill's proposed penalties for non-compliance.

The conflict surrounding the Community Reinvestment Bill corresponded with a targeted campaign by civil society organisations led by the South African Communist Party (SACP) called the Campaign for the Transformation of the Financial Sector. The Financial Sector Campaign Coalition (FSCC) mobilised membership from a multitude of organisations including the African National Congress (ANC), the Congress of South African Trade Unions (COSATU), the Treatment Action Campaign, the Savings and Credit Cooperatives League and Eco-Trust Care. The aims and objectives of the campaign were extensive, with a long-term vision of transforming the financial sector in favour of poor and working people.

Industry concerns over the Community Reinvestment Bill, in conjunction with mounting pressure from the SACP Campaign, culminated in the NEDLAC financial sector summit in August 2002. The parties to this summit, industry, labour and government, through consensus, agreed on a set of strategies that would provide an overarching framework for transformation in the sector. Emerging from the summit, industry committed itself to developing a BEE charter.

The FSC was developed voluntarily by the sector within the context of the BEE framework. Its overall aim was to address inequalities resulting from historical, political, social and economic practices that excluded blacks from the mainstream financial services sector, to contribute to sustained economic growth, development and social transformation in South Africa and to unlock the finance sector's potential, promote its global competitiveness and give it world-class status.

The FSC was to be effective from 1 January 2004 to 31 December 2014. A mid-term review of the Charter would be conducted in 2009. A charter council was set up to coordinate the implementation of the Charter. The Charter's specific objectives are:

• to implement, in the context of the financial sector, the South African government strategy of BEE by enhancing the ability of the financial services sector to provide appropriate and effective access to financial services for a greater segment of the population;

• to promote a savings culture in South Africa;

• to improve the quality of the pool of intellectual capital in the sector, attract new entrants and train existing and new black professionals and managers;

• to develop black strategic and operational leadership in the sector and support black entrepreneurs through entrepreneurial development;

• to promote triple bottom line accountability, including principles of good corporate governance;

• to increase the representation of black women and black people living with disabilities in the sector as employees, managers, suppliers and owners of equity; and

• to increase the number and improve the quality of black firms providing services and products to the financial services industry and to foster competition in the industry.

The Charter has seven critical pillars, as follows.

3.1 Human Resources Development (HRD)

This is one of the most articulated elements of the FSC. It aims to redress disparities in the South African workplace and broaden the skills base, especially by promoting black participation in the leadership and management of the FSC. The Charter spells out the objectives of the HRD strategy as:

• to promote a non-racial, non-sexist environment and enhance cultural and gender diversity in the sector;

• to increase the participation of black people in skilled, strategic and operational leadership in the sector; and

• to improve skills within the existing and new leadership and management.

Table 1 shows the performance indicators and targets for the HRD strategy.

Table 1: Performance indicators and targets for the HRD strategy

Indicator	Situation in 2002	Target by 2008(%)
1. Black people at senior management level	10	20–25
2. Black women at senior management level	1,6	4
3. Black people at middle management level	17	30
4. Black women at middle management level	5	10
5. Black people at junior management level	28	40–50
6. Black women at junior management level	12	15
7. Black women representation at all three levels and at executive level (total black women representation)		(33 by 2014)
Source: DTI, Finance Sector Charter, 2003, Sections 5, 1–5,4.

In addition, the FSC plans to spend 1,5 per cent of its total basic payroll per annum on training black employees. The sector is also committed to enrolling up to 4,5 per cent of its total staff in registered learnerships. Each financial institution is expected to report on its progress towards the above objectives and also its capacity development activities.

In order to achieve these HRD objectives, complementary efforts will have to be made by higher education and tertiary institutions to provide a pool of sufficiently qualified candidates who can be further developed under the HRD strategy of the FSC. They will also have to improve their recruitment and training of female students in the fields of commerce, business and computing studies.

3.2 Procurement policies

Procurement is another important FSC strategy. Financial institutions (FIs) are expected to meet a target of 50 per cent of the value of all procurement to be from BEE accredited companies (by 2008). The target should increase to 70 per cent by 2014. FIs are also to assist SMEs (small to medium sized enterprises) by:

• encouraging suppliers to address BEE accreditation;

• promoting early payment for services provided by SMEs; and

• helping SMEs tender for business from the FIs.

A major weakness of the BEE thrust has been the problem of ‘fronting’, where suppliers and SME companies simply employ blacks in order to qualify for BEE procurement status whilst in fact these blacks are not the real decision makers or owners of the businesses. The FSC's procurement policies are thus likely to face mounting pressure in terms of how companies achieve BEE procurement status and whether or not this process is sufficiently vigorous and legitimate.

3.3 Access to financial services

The FSC has developed indicators and targets in order to carry out the mandate given to them at the Financial Sector Summit. Part of the Declaration of the Summit called for the following specific actions by the sector (National Treasury, 2003: Section 8):

• provision of first-order retail financial services such as affordable banking services, contractual savings schemes and credit for small and microenterprises;

• development of sustainable institutions to serve poor communities; and

• regulation of credit bureaus.

Table 2 shows the indicators and targets for the strategy on access to financial services.

Table 2: FSC: Access to financial services

1. Access to transaction products and services (defined as first order basic and secure means of accessing and transferring cash for day-to-day purposes)	80% of LSM 1–5
2. Effective access to bank savings products and services (first order basic and secure means of accumulating funds over time (e.g. savings, contractual savings products such as endowment policies, collective investment and community-based savings schemes)	80%
3. Effective access to life assurance industry products and services to cover life insurance, funeral insurance, burial society, household insurance and health insurance	Percentage still to be decided in terms of LSM 1–5
4. Effective access to formal collective investment savings products and services	1% of LSM 1–5 + 250,000
5. Effective access to short-term risk insurance products and services	6% of LSM 1–5
6. Post-tax operating profits invested in consumer education (defined as programmes that are aimed at empowering consumers with knowledge to enable them to make more informed decisions about their finances and lifestyles)
Source: DTI, Finance Sector Charter, 2003, Sections 8,1–8,6.

The Charter also endorses the sector's commitment to:

• eliminating discrimination in the provision of financial services; and

• supporting the establishment of third tier community-based financial organisations or alternative financial institutions.

The FSC strategy for increasing access to financial services by hitherto underserved communities is indeed a significant innovation. However, although access to savings facilities and the provision of insurance services is important, the need for loan facilities is equally if not more so. That the FSC places much more emphasis on a narrow definition of access is a major weakness. It defines effective access as ‘being within a distance of 20 kilometres to the nearest service point at which first-order retail services can be undertaken’ (National Treasury, 2003). The definition also notes the importance of non-discriminatory practices and affordably priced products.

What this definition fails to address is the fundamental problem of increasing access to the full range of financial services, including access to credit. The thrust seems to be more of a drive to intensify deposit mobilisation, to tap even the smallest savings of the poor. But the key questions for the financial services sector in terms of transformation are how these savings will be leveraged so as to provide more economic opportunity for South Africa's previously underbanked and unbanked, and how they will be reinvested in communities so as to meet the needs of low-income housing, job creation and microenterprise development.

One of the successes of the access to financial services strategy is the ‘Mzansi Account’. Within one year of the FSC being introduced, about half a million small savings accounts had been opened with many banks (Banking Council of SA, 2005c). Although this is a significant development in demonstrating that the poor can use banks if appropriate services are provided, it is disappointing there has not been an equivalent of Mzansi in terms of growth in lending to the low-income segment of the population.

3.4 Empowerment financing

The objective of empowerment financing is to increase the total amount of BEE-related financing and investment. Some of the principles of BEE transactions are:

• to promote the productive and sustainable participation of black companies and black people in each sector of the economy;

• to promote longer-term shareholder-type relationships as opposed to short-term portfolio investments; and

• to encourage employee, community and collective ownership.

The Charter envisages that ‘the aggregate amount of new empowerment financing from the financial sector could exceed R75 billion’. A noticeable feature of the empowerment-financing clause is its lack of specific targets to achieve empowerment financing. For example, some of the less well-defined issues include:

• the total amount of empowerment financing to be advanced by the financial services sector over the period of the Charter;

• the amount of BEE transaction financing and other targeted investments; and

• the appropriate risk-mitigating measures and risk-sharing arrangements between the government and its development finance institutions on the one hand and the private sector on the other.

Although the principles of BEE transactions are clear, the Charter fails to identify quantifiable targets or time-frames, in sharp contrast to the HRD goals, for example.

3.5 Ownership in the financial sector

The Charter sets a target of 25 per cent for black ownership, measured at the holding company level, by 2010. Table 3 shows indicators and targets for control in the financial services sector.

Table 3: Indicators and targets for control in the financial services sector

Indicator	Situation 2002(%)	Target 2008(%)
Black people on the board of directors		33
Black women on the board of directors		11
Black people at executive level	15	25
Black women at executive level	2	4
Source: DTI, Finance Sector Charter, 2003.

In terms of transformation, these targets seem small but, if achieved, they could be an important step towards improving blacks' ownership and participation in the sector.

A major problem with the notion of ownership as defined in the Charter is that it seems to relate more precisely to a process of transferring power than to a process of transformation. The concern expressed about ownership of the economy as defined through BEE is that it does not the broaden ownership of the economy but rather transfers resources ‘at the apex and upper levels of the economy’ (Meintjies, 2004) This process of ownership transfer, therefore, rests on the assumption that those people who gain positions of influence at the ‘apex’ will influence change for the betterment of those who are still impoverished and disadvantaged. The fundamental question put forward by Joel Netshitenze of the ANC government is: ‘How do you ensure that the people drawn into business do not merely get co-opted into the culture they find there, but rather that they help to find a better form of South African capitalism?’ (Meintjies, 2004).

3.6 Shareholder activism

The Charter commits signatories to, among other things:

• promote increasing levels of influence of direct black owners at board level;

• encourage training and awareness programmes for shareholders; and

• encourage shareholder awareness through triple bottom line reporting and on performance in implementing the Charter.

These are important goals that are expected to enhance shareholder interest and participation in implementing the Charter. However, the Charter is silent on targets and timeframes and this may indicate a lack of real commitment to the proposed strategy.

3.7 Corporate social investment

The FSC has set a target of 0,5 per cent per annum of post-tax operating profits to corporate social investment (CSI) between 2004 and 2014 (FSC: 13,1). It defines CSI as projects that are aimed primarily at black groups, namely:

• education

• training

• development programmes

• job creation

• arts and culture

• health

• sport

The CSI target is a significant innovation which could generate millions for reinvestment in the social development of communities. However, as the Charter is not a legal instrument, to achieve this goal depends on commitment by industry, as this adds to its tax burden. It would be useful, as an incentive, if the government could consider the amount as tax deductible for the subsequent financial year.

4. Review of the implementation of the charter

This section reviews the institutional framework for implementing the Charter. It discusses the work of the Charter Council, a body set up to monitor the implementation. It also reviews the launching of the Mzansi account by the major South African banks as a product response to the Charter's commitment to more accessible banking services. While it would have been ideal to review the work of the entire sector, the authors hope that this article will make a contribution to further research in this area.

4.1 The charter council

The Charter Council was launched in October 2003 and consists of 21 representatives from industry associations, the Association of Black Securities and Investment Professions, the government, community associations and labour. The purpose of the council is to act as an independent body to oversee the charter's implementation. In contrast to the CRA in the United States, for example, the charter council under the FSC process represents an alternative monitoring approach to government regulation. The charter council extends the multi-stakeholder approach founded at the original NEDLAC financial sector summit in which industry, government, civil society and labour will collectively act as a ‘check’ on the sector's performance in achieving the FSC targets. In this sense, the charter council ‘represents an approach to inducing business to serve the poor as a business proposition by changing the market frameworks in which business operates instead of waiting for firms to take a more enlightened position on their own’ (Paul, 2005).

The Council also faces the significant challenge of devising a comprehensive strategy to ensure the Charter is comprehensively implemented. At a press release by the Council (Banking Council of SA, 2005a), an update on progress in implementing the Charter was presented. Among other issues, the briefing reported the following:

• A Charter Council Constitution had been drafted.

• A budget for 2005 had been drawn up.

• An administrative and management structure had been set up.

• Empowerment targets had been set up – for example:

  • Low-income housing finance of R42 billion by 2008. The banking sector was engaging the Ministry of Housing to develop a partnership for achieving the target.

  • Transformational infrastructure finance of R25 billion by 2008. Discussions with relevant government departments were reported to be in progress to identify appropriate progress.

  • Black SME financing of R5 billion by 2008.

• CSI target of 0,5 per cent of post-tax profit.

The Council also reported that it was in the process of finalising such issues as:

• Reaching agreement on the definition of ‘broad-based black economic empowerment’ and its measurement in ownership. This is rather surprising because this is an issue that one assumes should have been agreed on at the time the Charter was signed.

• Engaging the Department of Trade and Industry (DTI) on Codes of Good Practice – a government initiative which is meant to address the problem of ‘fronting’ where companies are ‘faking’ BEE by employing blacks whom they control and manipulate and putting them into senior management positions or on boards. In the end, no real empowerment of blacks takes place.

• Engaging the Retirement Fund industry on meeting their FSC commitments. This is a worrying sign for the Charter – that two years after its introduction, key industry players, such as the multi-billion Rand retirement fund industry, have to be reminded to fulfil their Charter commitments.

• Testing the original baseline figure at 31 December 2002 that formed the basis of the employment equity targets. This will enable the Charter Council to finalise the targets.

The press release by the Council seems to suggest that industry's support for the Charter has been lukewarm. However, some banking institutions have taken practical steps to implement the Charter and this could be an encouraging sign that more could be done in future to realise the goals of the FSC.

4.2 The Mzansi account

One of the more visible successes of the FSC is the introduction and growth of the Mzansi account – an account that was introduced as part of the Charter's goal of providing affordable and accessible banking to the previously unbanked population. The Council reported that almost 50 per cent of South African adults were unbanked or underbanked. The Mzansi aims to improve this. It was set up as an affordable and accessible banking scheme. The major South African banks have implemented this account, including ABSA, FNB, Nedbank, PostBank and Standard Bank. An average of R290 is held in Mzansi accounts. Table 4 shows some statistics on the account across five Fis (Table 4).

Table 4: Performance of the Mzansi Account as at 9 February 2005

	ABSA	FNB	Nedbank	Standard Bank	Post Bank	Total
Mzansi accounts opened	133 193	90 313	37 521	144 344	152 068	557 439
%	23,9%	16,2%	6,7%	25,9%	27,3%	100,0%
Source: Banking Council of SA, Press Release, 15 May 2005.

As of February 2005, PostBank had the largest share of account holders, followed by Standard Bank, ABSA, FNB and Nedbank. Fifty per cent of the accounts were from Gauteng and KwaZulu Natal; 22,4 per cent were from KwaZulu Natal, one of the country's poorer provinces; 62,5 per cent of account holders were aged from 25 to 54 years. The majority of them (55,7 per cent) were female. In terms of racial composition, 90,1 per cent were black, 3,8 per cent coloured, 2,1 per cent Asian and 4 per cent white. The picture clearly reflects the historical fact that blacks were underserved in terms of access to financial services.

Naturally, the banking community was full of praise for the overnight success of the Mzansi experiment. One banking representative said, ‘It is extremely encouraging to see that our target market is largely being reached … empowerment is a national priority and the financial access being provided to the women of South Africa contributes to the direct empowerment of the most marginalized sector of our country’ (Banking Council of SA, 2005b).

While Mzansi is indeed a good start in terms of improving access to financial services, the authors wish to argue strongly that it is a far cry from the real fundamental needs of impoverished blacks. Access to credit for informal and small to medium sized business where the majority of the players are black is the fundamental issue that requires innovation and action. The Charter has yet to achieve that goal. Unfortunately, owing to the aggregated form in which liabilities of the banking sector are reported (in South African Reserve Bank statistics), it is difficult to ascertain the nature of demand for credit by lower income groups. (This can, however, be easily estimated from the data on applications for loans submitted according to income group, but such data are not published.)

Although progress has generally been slow in implementing many of the Charter's goals, such as improving black ownership and control of the sector, and increasing procurement from black-owned businesses, a few institutions have made significant progress. The case of Standard Bank is an interesting one to study, although this bank has also not made inroads in terms of the fundamental issues of improving ownership and control. Nevertheless, the authors argue that the bank's systematic approach in implementing the Charter goals shows a degree of commitment and provides a base upon which the bank can build in future.

5. Lessons

What lessons can be drawn from the South African FSC so far?

First, it must be mentioned that the Charter was an innovation for which the sector should be applauded. For it to have mobilised its members (from the commercial banking community, mortgage houses and insurance companies, to name some of the bigger players) and to have met and negotiated with government, labour and civil society groups, was in itself a historical achievement.

Secondly, the comprehensive nature of the Charter, in terms of addressing the key issues which needed attention and redress in order to transform the financial services sector, is also a significant development upon which future efforts and initiatives can build to empower the black population and other marginalised and poor groups. The Charter provides a detailed framework and targets for improving black ownership and control of the sector, enhancing procurement from BEE companies, and improving black participation on the board and management of the sector.

The Mzansi account, one of the successes of the sector, demonstrates that change is possible if the sector commits itself. Increasing the mobilisation of very small savings is a costly business, which is why traditionally it is microfinance institutions that have been involved in this area. However, through innovation in the use of cooperative platforms, automation and economies of scale, the banks have reduced transaction costs significantly so as to serve the previously unbanked population more effectively. The key question that should be asked about this innovation, however, is to what extent banks will mobilise these savings and reinvest them in infrastructure, microenterprise development and housing that will benefit South Africa's black and low-income communities.

6. Conclusion and recommendations

At present, even in the case of the well-articulated FSC, the risk of growing scepticism from the public and the very communities that the Charter is meant to serve is quite high. In an age of market liberalisation, the risk of ‘nationalisation’ is, of course, limited, but in an environment where poverty and unemployment still abound the call for the sector to play a much bigger role in South Africa's development could grow stronger. However, the question should be asked whether it is reasonable to expect the finance sector to deliver more in terms of transformation or whether the government will have to play an increasing role in facilitating broader impacts of transformation through, for example, providing risk guarantees for lending into high-risk areas, including housing finance and microenterprise development.

The key question that emerges from this discussion is whether transformation in South Africa's finance sector can be achieved based on the Charter's framework of self-regulation and voluntarism. The alternative of greater government regulation and the wielding of ‘sticks’ for non-compliance is one that the sector sought to avoid at the outset in its decision to devise the Finance Sector Charter voluntarily. South Africa's experience in devising and implementing the Charter as a framework for transformation offers important insights into wider corporate citizenship thinking and is therefore an important area for further research and analysis.

Additional information

Notes on contributors

Shannon Rohan

Respectively, Senior Lecturer, Turfloop Graduate School of Leadership, University of Limpopo; and Programme Officer, Shareholder Association for Research and Education (SHARE), Vancouver, Canada. The authors would like to acknowledge the overall guidance and support of Ralph Hamann in devising this article, including his role in coordinating relevant research by Shannon Rohan in support of a project led by Sanjeev Khagram from the Kennedy School of Government at Harvard University.