A week ago, I wrote about the opportunity for township and rural startups to position themselves as intermediaries to access capital from institutions like the Public Investment Corporation (PIC).
This week, I want to unpack one of those “intermediary” models that already exists.
Co-operative Banking Institutions (CBIs) are regulated by the SA Co-operative Banking Association (SACOBA), a regulatory body that exists under the guidance of the Reserve Bank.
The model holds promise. At its core, it’s a community-driven, member-based financial institution meant to provide financial services to people who are often excluded by mainstream banks.
But the reality on the ground tells a different story.
While the idea sounds empowering, the red tape involved in starting and sustaining a CBI is enough to derail even the most determined entrepreneurs.
To begin with, while most ordinary co-operatives in SA can be founded by just five members and governed by a board of nine (including the founders), a cooperative bank is required to have a minimum of 200 members just to register.
Imagine the logistics of convening an AGM with 200 people, especially when most founders are still in the early stages of structuring governance, legal support, and financial literacy training.
The required minimum deposit capital to start a co-operative bank is R1m. While this seems reasonable as a baseline for any financial institution, managing that million comes with a price tag.
Operating costs such as salaries, compliance fees, and professional services (including audit fees) can eat up the lion’s share of that capital long before any real lending or financial activity begins.
This is where Sedfa (the Small Enterprise Development Finance Agency) comes in.
As a development finance institution (DFI), Sedfa is mandated to support the co-operative banking sector. However, the support currently on offer — in some cases, just R100,000 — barely makes a dent in what’s actually needed.
For example, some CBIs claim that just getting audited financials can take up nearly half of that support.
It doesn’t stop there.
CBIs must comply with all the regulatory obligations of a formal bank,including FICA compliance, submission of financial reports to the Prudential Authority and, often, even IT system audits.
Yet, they don’t receive the kind of infrastructural or financial support given to larger financial institutions. The barriers aren’t only financial — they’re also bureaucratic and highly technical.
Perhaps the most painful irony is that even when CBIs earn interest on deposits, the ability to reinvest that income meaningfully is severely limited.
Unlike commercial banks that can turn profits into expansion or dividends, CBIs face regulatory constraints and tax obligations that make it difficult to build real financial sustainability.
The funds often get swallowed by operational costs and compliance requirements, audited financials, FICA compliance, and liquidity buffers therefore leaving very little room to grow or innovate.
So while the model is designed to empower communities, the system ends up discouraging the very financial independence it claims to promote.
One woman-led co-operative I spoke to voluntarily deregistered because they felt more empowered running a traditional stokvel — where at least they had control, minimal compliance requirements, and no tax burden on interest.
This should concern us all.
As startups and SMMEs, we are often told to innovate, collaborate, and take advantage of government programmes. But we also need to remain vigilant.
Just because something is marketed as an “opportunity” doesn’t mean it’s viable in its current form. Sometimes, the packaging disguises a maze of red tape.
Let’s consider something as basic as a core banking system. For a CBI to operate, it needs a secure digital banking platform — one that can process transactions, store records, manage deposits, and stay compliant with SARB regulations.
Yet the cost of a proper system often exceeds the actual input capital. This alone becomes a deal-breaker for many co-ops, no matter how enthusiastic or well-intentioned their members are.
This is where DFIs like Sedfa and departments like the National Treasury and the DTI need to step up.
If the government truly believes in the potential of co-operative banking, they need to go beyond seed capital and consider shared infrastructure — for example, purchasing a centralised, compliant banking system that is accessible to qualifying CBIs based on merit and sustainability.
Because if not, then we are simply setting people up to fail.
There’s so much talk about financial inclusion, yet we don’t often include the people building these institutions in the decision-making process.
Proper and thorough consultation with grassroots co-ops is still lacking. Without it, policies are created in boardrooms and imposed onto people who must deal with the fallout.
We are not short of visionaries in our townships and villages.
But vision without support — and without a shift in how the system is structured — will always feel like pushing water uphill.
Until we start participating in the conversations that determine how money moves and who controls it, we will continue to fall short of the financial freedom our communities deserve.
Bohlale is a business consultant and youth empowerment advocate.
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