Real Estate Investor Magazine South Africa October 2014 | Page 19

UPFRONT

borrowed is “created”, the money required to repay
the often exorbitant interest is not “created”. As such,
the interest burden caused by the fractional system is
inherently unsustainable. And, because the banks don’t
“lend” something they had prior title, ownership and
rights to, the legal validity of a “loan” is questionable.
How can a loan agreement exist when nothing was
loaned? And then, how can the bank charge interest on
a “loan” that is not legally valid?
As Phakamisa Ndzamela, finance editor of Business
Day Live, put it: “... the major banks refuse to offer
poor people in certain areas cheaper credit. This market
failure opens gaps for unsecured lenders to offer
expensive credit to the poor and sadly many cannot
afford repayments. It is arguable that had people been
given credit with interest rates in the mid-teens, the
disaster at African Bank would not have been as hectic
as it has been.”
Who is responsible?
The bank’s managers made bad loans to South Africans
who could not afford to pay them back. For this reason,
SARB has set up a formal independent investigation,
which will have five months to investigate if any business
of African Bank was conducted recklessly, negligently

or with the intent to defraud depositors, other creditors
or any other person for any other fraudulent purpose. A
written report must be submitted within 30 days after
the completion of the investigation.
But why, in South Africa’s highly regulated financial
industry, did the Reserve Bank and regulator did not
step in sooner?
SARB’s bank-supervision department had been
engaging African Bank for about 18-20 months and
that had led it to its R5.5bn capital raising last year. In
a statement, SARB said it was paying close attention to
the company, but stopped short of intervention. SARB
open noted that its concern was about whether bond
holders, generally big financial institutions, face any
systemic risk.
Of course! Do not think for a moment that SARB
acts in the interest of the South African people. It is
a privately owned corporation and is beholden to its
shareholders, not South African citizens.
So it is not surprising that SARB will take R7bn of
our blood-sweat-and-tears tax money to protect the
bond holders and shareholders, generally big financial
institutions.
Then there is the question of the responsibility of the
regulators. South Africa’s National Credit Regulator