IFP Rally to Save Ithala Bank from Liquidation

by Central News Reporter
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IFP Rally to Save Ithala Bank from Liquidation

Inkatha Freedom Party (IFP)

The Inkatha Freedom Party (IFP) has expressed grave concerns over the impending liquidation of Ithala SOC Limited, a state-owned financial institution that has served as a vital lifeline for rural communities in KwaZulu-Natal. IFP Treasurer-General Narend Singh has urged the KwaZulu-Natal provincial government and national Treasury to act decisively to prevent the bank from facing the same fate as the ill-fated VBS Mutual Bank. The party emphasised Ithala’s critical role in providing financial services to historically marginalised communities, particularly in rural areas where commercial banks have limited presence.

The Role of Ithala Bank in Economic Development

Established as a developmental finance institution, Ithala Bank has been pivotal in offering banking services and financial assistance to emerging entrepreneurs and rural populations. Singh highlighted that many successful businesses in KwaZulu-Natal owe their beginnings to the financial support provided by Ithala through its parent organisation, the KwaZulu Finance Corporation.

“We know that banks often hesitate to grant loans to those without sufficient security, especially in rural areas. Ithala has always stepped in to fill this gap, ensuring financial inclusion and supporting small businesses and emerging entrepreneurs,” said Singh.

Prudential Authority Initiates Liquidation

Despite its developmental mandate, Ithala’s operations have faced significant regulatory challenges. The Prudential Authority, a regulatory body under the South African Reserve Bank (SARB), filed an application in the Pietermaritzburg High Court to liquidate the institution, citing insolvency and failure to meet regulatory requirements. This decision affects approximately 257,000 depositors who will now face disruptions as their accounts are closed and funds distributed through the liquidation process.

The Prudential Authority justified its move by stating, “The liquidation of Ithala is necessary to protect depositors and ensure an orderly distribution of funds. The appointed liquidator will utilise insolvency legislation to recover and distribute funds to the extent possible.”

The Lapse of Regulatory Exemption

Ithala’s troubles stem from its inability to transition from a ministerial exemption to a full banking licence under the Banks Act. The exemption, which had allowed Ithala to accept deposits temporarily, expired on 15 December 2023. Despite receiving ample time to regularise its operations, the institution failed to meet the required conditions.

The Prudential Authority made it clear that “the exemption was always temporary, and Ithala’s failure to secure a banking licence left no alternative but liquidation.”

Government Guarantees for Depositors

In a bid to reassure depositors, the National Treasury has stepped in to provide guarantees for retail deposits. The government has committed to ensuring a smooth transition for depositors to alternative banking platforms and has pledged to protect their funds throughout the liquidation process.

“Retail depositors’ funds will be safeguarded, and a repayment administrator has been appointed to oversee the distribution of available funds,” said a joint statement from the Treasury and the Ministry of Finance.

Stakeholders Condemn Liquidation

The Public Servants Association (PSA) and other stakeholders have criticised the Prudential Authority’s decision, arguing that it undermines Ithala’s developmental mandate and disproportionately impacts vulnerable communities in KwaZulu-Natal.

“Ithala has been instrumental in economic empowerment, particularly in rural areas. Liquidation jeopardises jobs, livelihoods, and access to essential banking services,” said the PSA in a statement.

Calls for Alternative Solutions

Stakeholders, including the IFP and economic analysts, have called for alternative solutions to save Ithala. Proposals include recapitalisation, restructuring, or strategic partnerships that could address the institution’s financial instability while preserving its developmental role.

Singh emphasised the need for collaborative efforts, stating, “We are working with Treasury and the national Minister of Finance to explore measures that will ensure the continued existence of Ithala Bank. Its closure would be a massive setback for economic transformation and financial inclusion.”

Economic and Political Implications

The potential closure of Ithala has sparked broader debates about the role of state-owned financial institutions in addressing economic inequality. Critics argue that the SARB’s decision reflects a bias toward protecting the interests of commercial banks at the expense of developmental finance institutions.

Economist and social commentator Tiisetso Makhele criticised the move, stating, “The Prudential Authority’s decision serves the interests of commercial banks rather than focusing on the broader agenda of economic transformation. Ithala’s liquidation will only deepen the monopoly of white-owned financial institutions.”

Makhele added that central banks in other developing countries actively support developmental finance institutions, and the SARB should adopt similar strategies.

Broader Financial Sector Challenges

Ithala’s predicament highlights systemic issues in South Africa’s financial sector, including the monopolisation of banking services by large commercial institutions. Many rural areas and townships remain underserved, leaving a significant portion of the population without access to affordable and inclusive financial services.

Stakeholders have called on the government to strengthen its support for developmental finance institutions to address these disparities and promote economic transformation.


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