SPEECH BY LN SISULU MINISTER OF HOUSING AT THE FINANCIAL SECTOR TRANSFORMATION CONFERENCE BY THE FINANCIAL SECTOR CAMPAIGN COALITION

26 July 2005
Indaba Hotel, Fourways
Johannesburg
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Master of Ceremonies
Chairperson of the Financial Sector Campaign Coalition
Chief Executive Officers of the banking institutions and other financial services
Representatives of government
Distinguished guests
Comrades
Ladies and Gentlemen:

Let me thank you for having invited me to a conference whose subject matter is of critical importance to the development of the country. The conference is dealing with the life blood of the economy. It is dealing with a subject matter whose elements if we get right and succeed to also get the necessary buy-in from everyone a different country may indeed be realized.

The financial sector is of strategic importance to the economic development of the country. As a rapidly growing sector (since 1997 the sector has been growing at 7.7 percent) its contribution to the Gross Domestic Product has been increasing. In 1995 it made a contribution to the GDP of 17.3 percent. In 2004 its contribution stood at 20.3 percent. This presented evidence that the sector has overtaken sectors that were dominant previously such as manufacturing, mining, construction, agriculture and government services.

In respect of housing and property development in particular the June Quarterly Bulletin the South African Reserve Bank reports that that mortgages emanating from banks for the household sector showed a considerable increase of some R16, 1 billion in the first quarter of 2005. This is the nub that while there has been a boom of over 19 percent per annum in the property market over the last five years, the poor have not benefited. We need to change this by transforming both the financial sector and restructuring the property market.

Of major concern to us here is no doubt access to finance and of particular importance to me, access to housing finance for the poor. If we can get this right, we are well on our way to a second revolution!

I came to this conference full of hope that together we map a particular direction that will help us further advance the cause of our second struggle – the struggle against homelessness and poverty.

The conference takes place at a convenient time in the stages of our development where not only ourselves but the whole of the continent has begun the process of looking at housing delivery as a most urgent developmental challenge we face.

In 2000 as civil society you launched campaigns for the poor to have access to finance from banking institutions and against the tyranny of credit bureaus. An orientation that is long overdue. For without the most fundamental right – the right to decent shelter – we would have no dignity for millions of our people. We would have no hope of the kind of economic growth that is necessary for development.

I am very sympathetic to the passionate call that very often comes from yourselves about credit bureaus. Within the South African context it is the bane of the lives of the poor. It is representative of all the accumulated injustices of the past. The instrument that has been used financial sector to justify their exclusion of the poorest sector of our people. I understand too that this sector has operated like some mafia pouncing on unsuspecting poor.

But from the government perspective the most feasible path is to ensure a rigorous transformation and regulation of this segment of the sector and that this be done on an urgent basis. For it does not matter how much access to finance we might agree on with the banks – this clearing houses the bureaus – will remain a serious stumbling block because it renders ¾ (three quarters) of our working poor illegible for finance through the banks. The urgency to transform therefore is clear and present.

From the side of government you will know that together with the banks we signed recently a Memorandum of Understanding in terms of which we committed ourselves to a partnership that will facilitate the creation of properly functioning housing markets in previously under-served areas and to ensure access to housing finance to those previously excluded.

Other elements of the Memorandum concern the implementation of housing and other relevant sections of the Financial Sector Charter that contribute to the development of sustainable human settlements, the development of consumer/borrower education initiatives and related capacity building within the sector, elimination of redlining, equitable access to home ownership, the stimulation and the creation of new housing stock, continued support for fully functioning housing markets in all areas, support and facilitation of affordable insurance products for a targeted market to amongst other things help protect a borrower’s dependants in the event of death, and the borrower in the event of disability and unemployment. And as you all know this was at the price of R42bn in terms of the Financial Services Charter. This is a much needed injection of capital into affordable and low income housing.

Other important provision of the Memorandum of Understanding concern increased provision of finance directly and through intermediaries. I believe this provision should help the growth of alternative institutions such as cooperatives to help extend access to housing finance to our people.

Together with the banks we have agreed on the Memorandum of Understanding comprehending that the real challenge before us is to extend housing finance; that governments institutions must as seamlessly as possible facilitate service delivery; that urgent policy changes to eliminate blockages and fast-track housing delivery was needed and that we collectively needed to end the exclusion of millions of the poor. The progress we have made in reaching this understanding is commendable. I regret however that I am not as yet able at present to share more details on the negotiations as these are still at a critical stage. I do count on the negotiating teams however that they will soon give me the honor to make publicly available what they have agreed to.

Against the background of these changes and developments Chairperson I believe the conference can help the movement forward to the achievement of a country we collectively envision. Into the palms of our hands the seeds of South Africa’s second miracle are clutched. Thus the pledge we all made in the Preamble of the Financial Services Charter of pursuing the vision of ‘an equitable society’.

I firmly believe (and the reports I am receiving from the negotiating team about the progress of negotiations gives this confidence) that the objectives of the Memorandum of Understanding to meet this pledge can be met. I believe that we all have come to realize that there is need to overcome the doubts and the fears that in the past prevented us from taking steps to realize the South Africa we envision. I believe that we have overcome those fears and doubts knowing fully well that to not to act on this vision of the future is to even risk the present.

The increased and acute demand for housing finance is in part the result of the legacy of apartheid. Hence the face of most of our urban towns and cities, their architecture and method of development speak about the absence housing financing of so many years. In various ways communities responded to this deliberate act of exclusion and disempowerment by setting up savings schemes from which they could draw to build houses for themselves. From their efforts it is clear that they too understood the role of access to finance as a tool to fight poverty. It is thus as a result of their efforts now initiatives calling on government to support the development of micro-lenders and community banking institutions have emerged thus recognizing the failure of financial institutions to assist. The Declaration of the NEDLAC Financial Sector Summit in August 2002 which called on government, business, community and labour constituencies to agree on strategies that will ensure the transformation of the financial sector to ensure that it is efficient in delivering financial services for developmental purposes is also evidence of this growing mood and recognition.

The Declaration recognizes that apartheid placed a great majority of our people at a significant disadvantage. Hence it is not possible for them to easily access credit or present their houses as collateral in as normal a way as normal capitalism would have it. It recognizes that banks and financial institutions had a role in perpetuating these advantages and that in the changed political conditions there would need to be a radical reversal of these disadvantages. In part these would entail the recognition of assets that currently exist within black communities and the poor for use as collateral and non-discriminated access to finance and credit.

I firmly believe that it is precisely these pertinent issues that we had in mind when together we agreed in the preamble of the Financial Services Charter to achieve an equitable society. For indeed, this is the only way in which we can together give opportunity to millions of South Africans that remained excluded during apartheid to acquire property and realize the value of their current asset to gain wealth.

Issues relating to migration and population indicate to me that we do not time to waste to resolve these matters as these have too become factors in the growth and the development of our economy and society. It is for these reasons that when I took over the portfolio of housing I became concerned about how we correct the legacy of the past whilst at the same looking at housing development in South Africa into the future.

In respect of correcting the legacy of the past we would recall the Record of Understanding between the former Association of Mortgage Bankers including the formation of Servcon as a result. All of this was done to normalize the payment of bank bonds through a process of installments as well as the re-scheduling of debts. In May, in Parliament, I announced during my budget speech that Servcon was in the process of being closed as I believed that the agencies mandate had come to an end. Yet, we still have a number of issues that remain unresolved raising questions about how do we deal with the changed economic circumstances of people who in are possession of bonded houses. As we found out during our Imbizo last year these are people for example who have either been retrenched or are not employed or have lost support to augment their incomes within their families from a relative. That this matter continues to present a challenge even at this stage is perhaps indicative that our past efforts did not yield the desired results we had worked for. Consequently, as we have found, the seeds to create instability remain present in the communities that are affected.

As government, we have laid the foundation to begin the implementation, in April this year, of the Comprehensive Plan on Sustainable Human Settlements. Through the Plan we took the deliberate decision to extend the mandate of the housing Department to the entire property market to end dualism. We did so believing that that was the correct step to take to ensure that our focus was comprehensive and that we would benefit from the financial support the banks can provide.

The problems seem immense. They discourage any radical solutions for fear that they might not work and lead instead to the collapse of our institutions. But the wise have always taught us that beacuse there is no single truth that will help us arrive at a solution it still is a good idea that we still keep searching.

If the financial sector did respond to the challenge we face of delivery as government by voluntarily setting up the Financial Services Charter process then there is keenness that we must achieve the same goal. If government too put aside its proposed Community Re-investment to enable agreed upon outcome by all then there is sufficient space to arrive at a common solution. The obvious dilemma that will all face perhaps is that despite these there is incessant pressure that we must produce results. We cannot produce these without your input. As we battle to find these solutions, I am convinced because these issues have been at the centre of your work, that you will be able to help us.

There are doubts that are already being expressed by some about the efficacy of the Financial Services Charter as it stands. These point out that we have been here before, meaning the promises that we have on the table are not new. What we should not fail however to realize is that it indeed is the first time that financial institutions have committed a lump some of funds to housing in the form or the R42 billion. I am therefore happy that the Coalition has not been swayed and sought to stick with us to help us enhance our understanding with the banks.

Because of its involvement I believe that it would be necessary to maintain the confidence of the public by developing a realistic and a relevant implementation plan for the Financial Services Charter.

I would like to emphasize that the implementation plan would need in particular to look carefully into issues relating how effectively access to financial services by need to happen including issues concerning communication.

A 2003 report by Fanae Mae highlights the need to also look also into issues related to management practices where banks fail to inform borrowers of the full-spectrum of work-out options including failures to contact borrowers earlier in the default management process. This also includes issues related to the predictions of defaults.

As indignation and open revolt continues to characterize the impatience of those who do not have houses it will no longer be possible to explain the continuation of poverty and homelessness when the source of these challenges is to be found in the failure of those with power and influence to appropriately co-ordinate and work together. Thus the need to instill public confidence through processes such as these.

In addition, it is my view that what we seek to achieve together with the implementation of the Financial Services Charter will ultimately not have the long-term effects that we seek it have or be sustainable to enable the creation of a equitable society we aspire to if the educational infrastructure involving educational institutions dealing with financial services related subjects, that will change cultures and currently prevailing practices within the financial sector.

The provision of healthy, secure and dignified living environments for our people is thus what we aim to achieve. Threatening our stability is the housing backlog and the evidence of migration and population growth. In between these are the measures we take collectively which will be evidence of our ability and/or inability to realize the landscape of our potential afforded by the experiences we have had of over ten years in reconstructing from apartheid and building a democracy.

I appeal to you all to creatively and with a single focus to those who do not have homes to enhance these measures. With the financial services we have as government indicated to our people that there is hope on the horizon and a partnership with the financial sector is realistic and possible. It is now time that we showed the results and enhanced the confidence the public has in these processes. With the support, monitoring and continued engagement that the platforms of the Coalition creates I am sure that we can do this.

I thank you very much.