Pillar 2: Access to financial services

The objective of the access pillar within the charter is twofold – firstly to increase the number of South Africans who have easy access to the actual physical infrastructure of banks, namely our branch network, ATMs etc. and secondly, to ensure that poorer South Africans have the ability to utilise the services of a bank through affordable products designed specifically to meet their needs.

The issue of affordability and appropriateness of products has been debated within the context of the elimination of discrimination in the provision of financial services. Whilst discrimination on the basis of race is no longer a primary issue in South Africa, affordability is still a proxy for race in South Africa and hence the focus on banking lower income black people.

Elimination of discrimination in the provision of financial services

In 1994 Standard Bank launched a separate distribution channel – EBank – to attract previously unbanked individuals. Three years later the bank integrated EBank (re-branded as AutoBank E) under the Standard Bank umbrella. However, in practical terms the channel was still seen as a separate entity. Until 2004, most convenience customers (those earning R0 – R5 000 per month) were served almost exclusively by AutoBank Es, and experienced a limited product and service offering.

In 2004, Standard Bank decided to extend its range of services to these customers and the bank is currently piloting AutoBank E products. In future, all AutoBank E branding will be eliminated and these outlets will be integrated according to the group’s unitary brand strategy. Employees in these outlets will be trained to ensure they are equipped to offer a broader value proposition to this important target market.

Points of Representation (POR)

An innovative solution to the challenge of extending financial services is the 'bank in a box' concept. A POR is built off-site and delivered complete and fully functional within 30 days of ordering. To date, 28 PORs have been placed in urban townships and deep rural areas with an additional POR planned for Matsulu in Mpumalanga. Standard Bank’s extended footprint includes the following sites:

• Diepkloof; Kliptown; Soshanguve; Orange Farm; Kwa Thema; Kagiso; Vosloorus; Lesedi Vosloorus (Gauteng).
• Makhado; Matoks; Seshego; Elim (Limpopo).
• Thlabane; Marikana (North West).
• Dennilton; Kamhlushwa; Kanyamazane (Mpumalanga).
• Dimbaza; Kentani; Motherwell; Daku Square (Eastern Cape).
• Highflats; Madadeni; Hlabisa; Izingolweni (KwaZulu-Natal).
• Makhaza (Western Cape).
• Thabong (Free State).

Origination

Under the access pillar, targets for originating debt finance in the affordable housing market, black SMEs and black agriculture SMEs are defined. The objective is to encourage banks to increase lending into these specific sectors.

Low income housing (LIH) – progress made

Standard Bank is in the process of finalising its LIH strategy, which will aim to consolidate a profitable, sustainable market segment and achieve leading market share. This will involve taking a different approach to the traditional housing value chain and by becoming more involved in all its aspects, embracing both supply-side and demand-side dynamics.

The bank is guided by three aims in its LIH strategy:

• Provide housing solutions for the purchase of new and existing properties, or the improvement of existing properties.
• Create new housing stock and revive dysfunctional housing markets in partnership with other stakeholders – to grow sustainable human settlements.
• Enable customers to leverage property equity to create additional wealth.

While meeting its charter obligations and targets in terms of origination and targeted investments, the LIH unit seeks to position the bank strategically as a growth driver of the overall housing finance market and the market for all bank products. The LIH strategy will be fully aligned with the bank’s existing home loans strategy to maximise integration and synergy.

Progress made in the LIH area has included:

• A comprehensive borrower education curriculum being formulated and implemented. Borrower education has been redesigned to alleviate pressure on mortgage origination channels and frontline branch employees, enabling a sharper focus on sales.
• The bank’s participation in the sponsorship of Lyakuluma, a consumer education television soap opera promoting home ownership.
• Principles of the finance-linked capital subsidy programme being incorporated into the bank’s LIH product plans and credit policies.
• A Housing Code of Practice being formulated, which will pave the way for the regulations of the National Credit Bill when introduced into the bank’s processes.
• Extensive research being undertaken to determine housing supply and demand, and to identify impediments to delivery. This research has formed the backbone of the bank’s LIH strategy.

Development finance (which incorporates the creation of housing stock for ownership or rental purposes for the charter target market) and wholesale funding (which refers to the bulk funding of business entities, financial intermediaries or development agencies that on-lend to the charter target market) have not historically been areas of focus for Standard Bank.

However, the bank has evolved a development finance strategy over the last 18 months, which has focused on:

• Creating networks.
• Identifying business opportunities.
• Building a business pipeline off a small base.

The rollout of development finance projects is dependent on a close alliance between Standard Bank Properties and the LIH business unit, and the need to develop a greater, mandated and more flexible appetite for this business. The bank is forging a closer relationship between the two, to address pressing supply-side challenges and create a feeder market for end-user housing finance.

In the area of development finance, the following has been achieved:

• Current projects under consideration total R582 million, with 32 500 units potentially targeted for the charter target market.
• Approved funding facilities totalling R55 million, with 248 units earmarked for the charter target market.

Black Small and Medium Enterprises (BSME) – progress made

Standard Bank recently signed a £20 million loan agreement with Agence Francaise de Development (AFD), a French development agency, to finance new investments in the Small and Medium Enterprises (SME) sector. Included in the AFD loan agreement is a grant element to be used for SME mentorship. Furthermore, the bank has secured a R160 million loan from AFD to lend to qualifying black SMEs as defined in the charter.

The bank has also established a dedicated business division to provide solutions to the SME market. The division will provide BSMEs with contract and leveraged financing.

Standard Bank has taken a proactive approach to meeting the target for BSMEs development. The bank has allocated a target for each province and provincial BEE champions have been appointed to drive the BEE strategy for that province. An efficient reporting system has been established to measure monthly progress, with reports generated centrally and reviewed by provincial directors.

Standard Bank has developed a number of funding initiatives to assist BSMEs, including:

• Leveraged finance.
• Contract finance.
• Franchising.
• Small-scale mining operator lending.

Leveraged finance provides empowerment finance for SMEs in the form of acquisition and expansion capital, while contract finance provides access to finance for BSMEs who have been awarded contracts in partnership with government and corporate organisations.

Black agriculture (BAgriculture) – progress made

Seven customer forums were held countrywide for the bank’s top 50 agricultural customers in each province.

Topics discussed included:

• Standard Bank’s role in Agricultural Black Economic Empowerment (AgriBEE).
• Charter impact on AgriBEE.
• Financing structures available to agricultural businesses.
• Draft AgriBEE scorecard and the DTI Codes of Good Practice.

Existing black empowered farming enterprises shared their experiences at the forums, which included important discussions on best practices and critical success factors. The forums were followed by individual sessions with interested customers.

Various internal workshops were held to upskill Standard Bank employees on the objectives and importance of broad-based black economic empowerment, the bank’s strategy and different financing structures. Furthermore, an agricultural specialist was appointed in the leverage finance team to assist in structuring of AgriBEE transactions.

Origination targets

Origination values are calculated as the sum of all qualifying debt originated from 1 January 2004 to date.

In Figure 5, the large difference in the BSME audited number for December 2004 and December 2005 is because the 2004 amount was calculated without taking into account debt originated by Standard Bank Properties, and the SME book was not coded with each SME’s BEE status. Coding of the book during 2005 significantly increased the total BSME debt origination recognised.

Similarly, a sizable portion of the increase in funding to black agricultural entities is due to the process of accurately recording the BEE status of customers.

In Figure 6, the trend line for funding advanced for LIH purposes, calculated on the basis of the value of the property purchased, indicates that it may be possible to reach the target for originating LIH debt by mid 2007 if the average rate of increase remains constant. However, it is unlikely to remain constant or increase, since the LIH unit has indicated that there has been a decline in demand during the year to December 2005 as compared to the year to December 2004. The rate of debt originated still remains above the interim target line, which indicates achieving the target by the end of 2008.

It is important to note that the LIH linear trend based on income level criteria (Figure 7) indicates that the bank will only move above the interim target line by the end of 2006, and that the overall target will only be reached in the third quarter of 2008, if there is constant growth in LIH funding.

A linear trend line has not been included in Figure 8 because the coding of the book and recognition of 2004 property funding skews the actual data, and a major portion of the funding recognised in 2005 is actually for debt written in 2004.

Debt originated to BSMEs is currently on par with the interim target as defined.

A similar situation exists for lending to black agricultural enterprises in that a major coding process skews the trend line. However, as with BSME, current origination rates exceed the interim target.

Consumer education

The charter commits banks to provide adequate education on products and services offered to customers in the lower income brackets. Banks have been set a target of spending 0,2% of prior year after-tax profit to effect this consumer education. Standard Bank has scored full points for consumer education over the past two years.

Origination (Rm)

Figure 5

LIH trend property value (Rm)

Figure 6

LIH trend income level (Rm)

Figure 7

BSME (Rm)

Figure 8

BAgriculture (Rm)

Figure 9