THE ROLE OF COMMUNITY BANKS IN SOUTH AFRICA: CAN IT CONTRIBUTE TO IMPOVE ACCESS TO FINANCIAL SERVICES FOR THE POOR?

Community banking initiatives are defined in this paper as membership based decentralized and self-help financial institutions. Under this broad definition we discuss the informal variants of community banks, the rotating savings and credit association (or in South Africa better known as the stokvel), the more formalized village banks spreading throughout the country and the very formalized (defined in terms of legislation and registration requirements) institutions registered under the Mutual Banks Act of 1993. We show that the informal financial groups are changing in profile and mode of operation and we look at factors contributing to success and failure (CC - please expand here). The village banks started slowly since 1994 and then the concept received support after which the formation of new village banks mushroomed. At first this phenomena was handled as an "exemption" by the financial regulators and recently more serious consideration of the more formal inclusion of the concept in financial legislation was evident with its inclusion in the draft co-operatives legislation. The danger exists of too fast growth as these institutions are by nature savings-first institutions and experience shows that quick growth could lead to the formation of a weak institutional and collective base. Lastly we turn to the highly formalized structures; thus those registered under the Mutual Banks Act. We discuss the rise and demise of the Community Bank (the first bank to be registered under the Mutual Banks Act) and other registrations and their experiences. We conclude by highlighting the risks that must be attended to in supporting community banking, the vast potential of community banking and support measures that could help the growth of these institutions without distracting them from their essential focus and strength, self-help and self-organised