Dr. Reneva Fourie

Profits before people is the dominant mantra in the South African economy, and the financial services sector is no exception.

It is glaringly disconnected from the harsh realities that millions face as they struggle to make ends meet. South Africans are grappling with exorbitant banking fees, crippling debt, and a disheartening lack of access to affordable financial services. This situation has marginalised countless individuals, leaving them underserved by the very institutions designed to support their financial aspirations.

The transformation of the financial services sector has been an issue since the advent of democracy in 1994. Under apartheid, the sector reflected its racially skewed ownership and access patterns. White South Africans enjoyed access to a comprehensive array of advanced financial products, including loans, mortgages and investment opportunities, while black SAns were systematically excluded from these essential services.

The limited access black South Africans had was often confined to a handful of specialised financial institutions that offered restricted services. Institutional barriers obstructed their ability to obtain loans, credit, or even basic banking accounts.

The so-called 'Homeland' banks, created to oversee the finances of the bantustans, were consistently underfunded and inadequately equipped to meet the financial needs of the intended populations. The apartheid-era policies that excluded non-white SAns from full participation in the economy have had long-lasting effects on wealth generation and distribution.

When the country transitioned from apartheid to democracy, there were high hopes for fundamental change, including correcting the historic inequities in wealth distribution and access to financial resources. The financial services sector became one of the primary targets for transformation. However, the government prioritised fiscal stability and integrity, while failing to directly address the everyday challenges faced by ordinary citizens.

In the 2000s, the SACP launched the Financial Sector Transformation Campaign as part of its Red October Campaign. The campaign successfully mobilised over 50 other organisations and resulted in the signing of a declaration by NEDLAC’s Government, Business, Community and Labour constituencies in August 2002 at a Financial Sector Summit.

The campaign achieved increased transparency in credit bureaus, improved access to banking facilities – including the Mzansi account – better loan regulations, curtailment of unregulated and unscrupulous home repossessions, and the introduction of the Financial Sector Charter effective January 2004, which aligns with the BBBEE Act. The National Credit Act and Regulator, now the Financial Sector Conduct Authority, also emerged from this campaign, helping South Africans weather the 2008 global crisis.

Still, many remain unbanked and issues like high bank charges, high interest rates, predatory lending and asset seizures persist. Over the last few decades, banks and financial institutions have capitalised on the country’s structural inequality and poverty to extract wealth from individuals, particularly the poor and vulnerable.

One of the most explicit ways banks exploit citizens is through excessive bank charges. South Africa has some of the highest bank fees in the world, with the poorest individuals bearing the brunt of this burden. Monthly account maintenance fees, ATM withdrawal charges, transaction fees, and penalties for insufficient funds are just some of the ways banks extract money from people who can least afford it.

In many instances, low-income South Africans are subjected to punitive fees when they fail to maintain a minimum balance or overdraw their accounts by even the smallest amount. For individuals who are unemployed or live paycheque to paycheque, the fees for maintaining an account or withdrawing cash from an ATM can be devastating.

Another key way banks exploit citizens is through predatory lending, particularly in payday loans, personal loans, and micro loans. Low-income citizens are often targeted by lending institutions that promise quick loans to individuals in desperate need of cash. However, these loans are almost always accompanied by exorbitant interest rates and hidden fees that make repayment virtually impossible.

The interest rates charged can be as high as 20 per cent and, in some cases, even higher. These rates far exceed inflation or the South African Reserve Bank’s prime lending rate and are designed to trap borrowers in a cycle of debt. Those unable to access formal credit are left vulnerable to loan sharks.

Failure to repay the loans often results in asset seizure. In many cases, banks and other creditors can claim ownership of personal assets, including cars, homes, and valuable possessions, through legal mechanisms such as repossession and foreclosure. When people fall behind on payments, often because of unforeseen medical expenses or the loss of income, they are at risk of losing critical assets that they have worked hard to acquire, further plunging them into a state of financial and social instability.

Equally concerning is that the banking sector has become a central player in the political arena. The revolving door between government institutions, particularly the Treasury, and the banks is a case in point. It has become a pattern in which former finance ministers, central bank governors, and other senior officials in the Treasury find lucrative positions within commercial banks or on industry boards.

This creates a situation where key policy decisions – especially those relating to monetary policy, state-owned enterprises, and financial regulation – can be influenced by individuals with strong ties to the financial industry.

The objectivity of banks in their dealings with politically exposed persons (PEPs) to comply with anti-money laundering and anti-corruption laws is highly questionable. Closing bank accounts belonging to individuals and organisations is often weaponised to silence dissent against the status quo.

Frequently, the justification is 'reputational risk,' yet there is no real accountability or justification for these actions. If banks had applied their standards fairly, the President's bank accounts would have been closed due to the Phala Phala scandal. The Zondo Commission has documented substantial evidence detailing various banks' roles in enabling state capture. Still, there have been no repercussions. This ‘weaponisation’ of the banks enables these profit-driven entities to become active participants in the political process.

In this regard, they are even complicit in undermining the development of the economy. Under apartheid, the financial services sector was central to financing the state and its policies, including the development of sectors like mining, agriculture and manufacturing.

Yet today, these entities are channelling capital in a manner that reinforces their dominance, delving in, among others, speculative finance rather than long-term, productive investments in the real economy. Their Environmental, Social, and Governance (ESG) programmes have become little more than window dressing, focusing on social investment – such as corporate social responsibility initiatives – rather than on making structural changes to the financial system and advancing economic justice.

The transformation of the financial services sector is an imperative. The sector needs to be diversified to include community and cooperative financial institutions. Public financing institutions need to be empowered and assigned developmental obligations. Structural barriers to financial inclusion and economic justice must be removed. Fees for basic banking services must be capped. Stricter regulations on interest rates are necessary to prevent exploitative lending practices. Furthermore, investing in financial literacy programmes is crucial to empowering individuals and ensuring they can hold financial institutions accountable for any abusive practices. By implementing these decisive measures, South Africa can forge a more equitable financial landscape and uplift its most vulnerable citizens.

* Dr Reneva Fourie is a policy analyst specialising in governance, development and security and co-author of the book ‘The Art of Power: Pursuing Liberation and Nation-building’

** The views expressed do not necessarily reflect the views of IOL or Independent Media.