Strauss Commission Report

ACB: The Agricultural Credit Board
ATM: Automated teller machines
BATAT: Broadening Access to Agriculture Thrust
BRI: The Bank Rakyat Indonesia
CAB: Ciskei Agricultural Bank
CGE model: Computable general equilibrium model
COSAB: Council of South African Banks
CSS: Central Statistical Services
DBSA: The Development Bank of Southern Africa
DFCs: Development Finance Corporations
DFIs: Development Finance Institutions
DFS: Development Finance System
FAF: The Financial Aid Fund of the Sugar Association
FISP: Financial Intermediaries Support Programme
GAF: The Get Ahead Foundation
GATT: The General Agreement on Trade and Tariffs (now institutionalised as the World Trade Organisation) GDC: The Gazankulu Development Corporation
GGP: Gross geographical product
IDC: Independent Development Corporation
IDT: Independent Development Trust
KAC: The KwaNdebele Agricultural Company (KAC), a subsidiary of the KNDC
KFC: The KwaZulu Finance and Investment Corporation
KHULA: Khula Enterprise Finance Limited
KNDC: The KwaNdebele National Development Corporation (KNDC)
KUC: The KwaNdebele Utility Company (KUC), a subsidiary of the KNDC
LAND BANK: Land and Agricultural Bank of South Africa
LTK: Lowveld Tobacco Corporation
M&E: Monitoring and Evaluation
MFI: Micro Finance Institution
NASASA: The National Association for Stokvels in South Africa
NDFIs: National Development Finance Institutions
NGOs: Non governmental organisations
NHFC: The National Housing Finance Corporation
NTK: Northern Transvaal Co-operation
NWDC: The Northwest Development Corporation
OAP: Old age pensions
OTK: Eastern Transvaal Co-operation
PDCs: Provincial Development Corporations
PO: Post Office
PSE: Producer subsidy equivalent, a standardised measure of direct and indirect support, used as a basis of comparing agricultural support between countries
R: Recommendation
RDP: Reconstruction and Development Programme
REFSA: Renewable Energy Fund for South Africa
RFF: The Rural Finance Facility
ROA: Return on assets
ROE: Return on equity
ROSCAs: Rotating Savings and Credit Associations
SAAU: The South African Agricultural Union
SABC: The South African Broadcasting Corporation
SARB: The South African Reserve Bank
SBDC: Small Business Development Corporation
SDI: Subsidy Dependence Index
SEF: The Small Enterprise Foundation
SMMEs: Small, medium and micro enterprises
SMRF: Savings Mobilisation Regulatory Framework
TBVC states: The former Transkei, Bophuthatswana, Venda and Ciskei
TEBA: The Employment Bureau of Africa Limited
TOR: Terms of Reference

FOREWORD

To: The Hon. N R Mandela
President of the Republic of South Africa

We, the undersigned, appointed by you on 19 January 1995 as members of the Commission of Inquiry into the Provision of Rural Financial Services, have the honour of submitting our final report. This Report is in supplementation of the interim report of the Commission submitted to you in March this year. The recommendations have been restated and show some variation from those of the Interim Report.

Terms of Reference

You deemed it appropriate to appoint us, the undersigned, to inquire into and report on the following matters:

To investigate the provision of rural financial services, within the context of the rural development objectives of the RDP, and make recommendations for policy, legislative and institutional measures to improve financial services for rural households, farmers and other entrepreneurs; and to incorporate the following in the investigation:

Needs and aspirations of rural people including an assessment of the current and potential demand for rural financial services;
a review of the current sources of rural credit and other financial services and the extent to which they are meeting this demand. This review will scan the legislative framework, the motivation and effect of such credit and other financial services. This should include an analysis of the policies and practices of the diverse institutions involved in the delivery of rural financial services;
broadening the participation of rural people in rural financial markets by proposing diverse financing mechanisms to ensure access to financial services with an emphasis on savings mobilisation;
central, provincial and local interrelationships in terms of institutional structures and financial arrangements;
financial mechanisms to facilitate the acquisition and development of land within the framework of a land reform programme;
the position of women to be specifically attended to as priority beneficiaries of public sector activities;
complementary and interactive roles of civil society and the State sector;
mobilisation as well as application of financial resources;
the impact of related policy frameworks on rural finance within the wider spatial framework of South Africa and Southern Africa;
recommendations to structure a monitoring and evaluation system regarding the provision of rural financial services;
capital retention in rural areas;
methods of expanding the backward and forward linkages in the rural and broader economy;
and to report to you as soon as this can conveniently be done, using all diligence, the result of your inquiry.

Procedure

The Department of Land Affairs was charged with the responsibility of co-ordinating the administration of the Commission. By arrangement, the Department assigned the secretariat to the Development Bank of Southern Africa, and Mr. Gerhard Coetzee, Associate Director at the Development Bank, was formally appointed as Secretary to the Commission. The Development Bank was also appointed as lead consultant, with a brief to administer the research inputs to the Commission.

For the investigative phase of its work the Commission appointed three task teams from its membership. Each of the task teams then invited input from specialists and from specific interest groups, as well as the general public. The task teams were respectively briefed to look at a) the need for rural financial services, b) institutional structures rendering rural financial services and c) the legal framework applicable.

The Commission met on a monthly basis throughout 1995, and the task teams sporadically in between. An advertisement calling for submissions to the Commission was placed in a variety of national, regional and local newspapers during March and April 1995. An opportunity was created for those who wished to, to substantiate written submissions with oral evidence. Special attention was also given to liaise appropriately with the Departments of Finance, Trade and Industry, Agriculture, and Housing, given their interest and involvement with the subject of the Commission's work. The Commission arranged to brief the relevant Ministers and met quarterly with the Minister of Land Affairs to keep him abreast of progress.

The Needs Task Team appointed some 30 consultants to assist with various aspects of its inquiry by means of short papers. These related to the expected impact of social, political and institutional change on the use of financial instruments in the rural areas of South Africa.

The Institutional Task Team followed a two pronged approach. First, the task team mobilised extensive inputs from institutions currently involved in the provision of rural financial services in South Africa. This was done by means of a questionnaire and a series of meetings with targeted institutions. Second, the task team engaged the services of two internationally acknowledged scholars to assist in designing measures to evaluate the future success of programmes aimed at the provision of rural financial services.

The Legal Task Team commissioned input on the legislative framework relating to agriculture, land reform and the financial sector in general, but with a focus on the ability to provide financial services in the rural areas of South Africa.

During March 1995, the Commission was requested by the Minister of Land Affairs to submit an interim report on structures to facilitate the financing of land purchases under the land reform pilot programmes. A Task Team, chaired by Ms. D R Motsepe, vice chair of the Commission, was established to address this issue.

In its Interim Report to you in March this year, the Commission agreed that certain of its terms of reference required further elaboration. It was also deemed desirable to create an opportunity for public input on its work at that stage. To undertake the additional work, a further Task Team was created under the leadership of Dr Helena Dolny. This Task Team, consisting of members of the Commission, was able to obtain substantial further inputs from consultants commissioned by it, as well as from a wide range of public submissions. The Task Team reported to the Commission in July 1996.

In its Interim Report the Commission recommended a dedicated institution to accept responsibility for furthering the provision of financial services to residents of the "deep" rural areas of South Africa. It was suggested that this function be performed by the Land and Agricultural Bank of South Africa, to be renamed the Rural Bank.

In this final report, the Commission has moved away from this proposal and, instead, suggested a broader responsibility for rural development, to be assumed by a Development Council, the establishment of which was recommended in the Interim Report. A greater role for the Post Office in the rendition of financial and community services is also recommended by the Final Report, as is a role for Central Statistical Services in the monitoring of rural development progress. The Land Bank, instead of being a "champion" for rural development as envisaged in the Interim Report, is now recommended to continue its primary focus on agriculture. However, it should broaden its role considerably as an agent for the Department of Agriculture and Land Affairs. The revised proposals will still require a substantial transformation for the Land Bank.

In the Final Report your Commissioners provide a summary of the most important conclusions reached during their investigations, as well as a full list of recommendations to the Government on actions that are considered necessary to further the aims of the rural development strategies adopted by the Government.

The Commission trusts that its work will contribute to a better understanding of the needs of rural people, particularly women, and that it may guide and expedite the task of those charged with the enormous task of rural development per se.

Acknowledgements

Since submitting the Interim Report, Mr JS Hugo retired as Chairman of the Land Bank and tendered his resignation as a member of the Commission. Continuity in providing a Land Bank perspective was provided by Mr Karl Ehrenberg, and the Commission wishes to acknowledge the willing co-operation and valuable inputs received from Messrs Hugo and Ehrenberg.

The Commission wishes to re-affirm its appreciation to those acknowledged by it in the Interim Report. Apart from the personnel and infrastructure of the Development Bank of Southern Africa which remained indispensable to the Commission, the bulk of the work in completing the final leg of the Commission work, was either undertaken or co-ordinated by Dr Helena Dolny. The final preparation of the report was undertaken by the Secretary of the Commission, Mr Gerhard Coetzee, in consultation with Prof. Nick Vink and the Chairman after due consideration of input from other members of the Commission.

Signed on 18 September 1996 by

C. B. Strauss - Chairman
D.T. Brand
H. M. Dolny
S. Goldblatt
B. S. Jack
J. S. G. Joubert
B. T. Memela
D. R. Motsepe
K. Nhlapo - Vice-Chair
J. W. Raath
N. Vink
P. G. A. Wrighton
G. K. Coetzee - Secretary

1 Vision, Terms of Reference and Recommendations
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FINAL REPORT OF THE

COMMISSION OF INQUIRY

INTO THE

PROVISION OF RURAL FINANCIAL SERVICES

CONTENTS

ACRONYMS

FOREWORD