Responding to new pressures : Ithala Limited's changing role in serving the "unbanked" and the poor in KwaZulu-Natal.
This dissertation examines issues related to KwaZulu-Natal's "unbanked" and poor populations and details efforts by Ithala Limited, a government-backed development finance institution (DFI) acting as a subsidiary of the more broad-based Ithala Development Finance Corporation, to make financial products and services available to these constituencies. Specifically, it is suggested that while Ithala Limited has been largely successful in providing savings accounts, home loans and business support finance to many of KwaZulu-Natal's "unbanked" and poor citizens, the organization is now facing political and commercial pressures which call into question its future as a "pro-poor" "banking" institution. In particular, this study identifies Ithala Limited as being unable to gain formal licensing as a banking agency as the result of anxieties felt by state institutions like the South African Reserve Bank (SARB) over the potential impact that Ithala Limited's sub-prime lending activities may have on macroeconomic stability. As a result of these worries, the SARB (along with the KwaZulu-Natal provincial government) is pressuring Ithala Limited to scale-back the extent of its "banking" mandate. A second pressure is identified by this study as emanating from South Africa's commercial banks, whose initial reluctance to serve impoverished populations appears to be fading as more cost-effective ways are found to extend banking products and services to the poor. For Ithala Limited, an advent of commercial sector interest in serving the "unbanked" and the poor raises key pressures revolving around the extent to which the firm, as a parastatal body, should seek to compete with the private sector when it comes to assisting these populations. This study poses two central questions: 1) how should Ithala Limited respond to these pressures? and 2) regardless of how it responds, how should the organization shape its corporate priorities to ensure that it remains an effective "development tool" in the future? This dissertation then argues that while the pressures facing Ithala Limited from both political and commercial forces are not without justification, the organization continues to possess a number of unique qualities that rationalize its continued presence in serving the low-income and "unbanked" markets in KwaZulu-Natal. As such, it is the position of this dissertation that Ithala Limited should try to resist these pressures as much as possible. At the same time, it will be demonstrated that for Ithala Limited to continue achieving success in assisting these aforementioned constituencies, it must pursue a three-pronged approach to organizational reform that prioritizes some degree of privatization to attract new sources of capital and to ease government fears about the existence of a "state-owned" bank for the poor. Further reforms, this study reveals, are needed in the areas of technological utilization and "homegrown" research capacity, both of which must be expanded and improved upon in order to allow Ithala Limited to reduce its operating costs, introduce a more varied range of products and keep up-to-date with changes in South African banking trends.