Financial cooperatives: regulatory and supervisory answers for South Africa and Malawi

Doctoral Thesis


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The regulatory and supervisory framework of financial co-operatives in South Africa consists of the Cooperatives Act (No. 14 of 2005), the Co-operatives Bank Act (No. 40 of 2007), Banks Act Exemption (Notice 620 of 2014) and the Financial Sector Regulation Act (No. 9 of 2017). In Malawi, the regulatory and supervisory framework of financial co-operatives consists of the Financial Services Act (No. 26 of 2010) and the Financial Co-operatives Act (No. 8 of 2011). This thesis proposes that the regulatory and supervisory frameworks provided by these pieces of legislation in both South Africa and Malawi do not adequately regulate the sector and that this in turn, one of the main contributing factors to the slow growth of financial co-operatives in the respective countries. On the one hand, the frameworks over-regulate some aspects of the financial co-operatives sector. This overregulation has created a harsh regulatory environment for some financial co-operatives. On the other hand, some aspects of the financial co-operatives sector are underregulated. Under-regulation has resulted in regulatory arbitrage and oversight of the fact that financial co-operatives have economic objectives, ownership structures, risks, and challenges unique to them. Interestingly, although such gaps and overcompensations in the frameworks have hindered the growth of formal and semi-formal financial co-operatives, they have fostered the growth of informal financial cooperatives. Accordingly, in both countries, there is an overwhelmingly large sector of informal financial co-operatives. Informal financial co-operatives are not governed by formal pieces of legislation. Rather, they are governed by indigenous law, or as otherwise termed, the law of the people. This thesis postulates that the overregulation and under-regulation embedded in the current regulatory and supervisory frameworks have been birthed from a misunderstanding of what financial co-operatives are and how they ought to function; an infusion of unfavourable historical and political influences and practices into the current regulatory and supervisory frameworks; overdependence of external aid; and lastly, an underestimation of the competencies of the citizens in both countries. The aim of this thesis is not to suggest supplanting of the current formal frameworks in South Africa and Malawi, or an adoption of informal governance structures. Instead, this thesis aims to provide recommendations for legal reform within the current framework. It aims to propose how, if possible, or required, the relevant laws in South Africa and Malawi might be changed, reformed or developed within their existing frame of reference.