The Role of Community Banks in South Africa: Can it Contribute to Improve Access to Financial Services for the Poor?

This paper discusses the current status of community banking in South Africa. It:

• Defines community banking as membership-based, decentralized and self-help financial institutions;
• Discusses the informal variants of community banks, the rotating savings and credit association, the more formalized village banks spreading throughout the country and very formal institutions registered under the Mutual Banks Act;
• Argues that informal financial groups are changing in profile and mode of operation;
• Examines factors that contribute to their success and failure;
• Expresses concern that their quick growth could lead to the formation of a weak institutional and collective base;
• Discusses the rise and demise of the Community Bank and other registrations, and their experiences.

The paper details the history of the village banks as follows:

• They were started in 1994;
• At first, they were handled as an exemption by financial regulators;
• Recently, they have been included in the draft cooperatives legislation.

The paper concludes by highlighting:

• The risks involved in supporting community banking;
• The vast potential of community banking;
• Support measures that could help the growth of these institutions without distracting them from their essential focus and strength.