We understand that, to become the leading African financial services organisation, we must contribute to the long-term viability and success of the communities and countries in which we operate by facilitating economic growth and social development.
We can only do this effectively if we stay relevant to the needs of communities and help to advance national objectives. Our social compact commits us to making a contribution to socio-economic development in a way that is consistent with the nature and size of our operations in the countries we serve.
Black Economic Empowerment (BEE) is a national strategy that seeks to enable the full economic engagement of South Africans who were excluded from full participation under apartheid. It targets black (African, Coloured and Indian) South Africans with a specific emphasis on black women and black people with disabilities.
Recognising BEE as a moral and commercial imperative to South Africa’s long-term future and the bank’s sustainability, we set annual BEE targets that are approved by the Group Social and Ethics Committee. Independent, accredited external auditors conduct independent assessments of our BEE performance against the Financial Services Sector Codes for Broad-based Black Economic Empowerment (FS Codes).
With regards to employment equity, we are experiencing challenges in meeting targets for black people with disabilities and black people in top and senior management positions. As our current employment equity plan terminates at the end of the year, we will be developing a new plan in the course of 2016. A further challenge is legacy complexities in skills development management and reporting systems, which make effective tracking and reporting of skills spend difficult. A project team is addressing these issues and has made good progress to date.
Many African countries are increasingly putting processes in place to transform their economies, by promoting indigenisation (local ownership). We engage constructively in debates on these developments in an effort to balance the legitimate expectations of economic transformation with the reasonable rights of investors. We take a multi-faceted approach to localisation and our relevance in the market, taking into account what we do for our staff, our contribution to socio-economic development, industry development and job creation. Ownership is an important element of this, and we comply fully with legislation that requires local shareholders to hold a percentage of shares.
In Nigeria, we support the Central Bank’s Financial Inclusion Strategy as well as the Nigerian sustainability banking principles. In Uganda, we focus on aligning with the local government’s transformation priorities as set out in the country’s National Development Plan. In Namibia, we have transferred an initial 10% shareholding to our employees and a community trust, in line with regulatory requirements to increase local participation in the financial sector. The Zimbabwean government is also embarking on policy implementation that will focus on the broad-based empowerment of its citizens.
Preferential procurement aims to ensure that black businesses in South Africa have access to markets. It is a strategic focus area for SBG. We direct as much of our procurement spend as possible to black-owned and black women-owned businesses, particularly small and medium-sized enterprises (SMEs). We undertake monthly portfolio reviews to measure our progress against plans and targets to diversify our portfolios.
The Group Vendor Management and Procurement unit has successfully encouraged our business units to use the services of black SMEs, leading to an overall 13% increase in weighted procurement spend with BEE suppliers to R21.6 billion. Moreover, this comprised a 33% increase in black-owned SME procurement spend, including a 62% increase in black women-owned SME procurement spend. Consequently, our preferential procurement scorecard once again achieved a target of 16.
Small businesses often lack access to funding, a sound business plan and the capacity to deliver to large organisations. The year-long Standard Bank Supplier Development Programme is aimed at helping potential black-owned and black women-owned suppliers navigate the tender process. A business development service provider, appointed by the bank, assists SMEs in areas like marketing, credit professional services and physical security services, upgrading infrastructure, improving financial management and building capacity. This initiative not only helps the viability of these businesses, it also helps mitigate supply chain risks.
While we aim to procure goods and services locally wherever possible, our ability to do so is constrained by the absence of a broad range of vendors. This in turn hampers our ability to match the cost of goods or services available with our defined technical and quality requirements. Our procurement policy and guidelines clearly set out the products and services that can be sourced locally and those which must be sourced centrally through the Group Vendor Management and Procurement unit.
Our corporate social investment (CSI) strategy is aimed at creating meaningful and lasting mutual benefits for communities and for SBG. Working to improve the socio‑economic circumstances of the communities in which we operate enhances our reputation, demonstrates that we are locally relevant and responsive, positions us favourably to compete for business and gives us the opportunity to grow in new markets. In addition, our programmes to support our employees’ altruism are an important part of our employee value proposition. In 2015, our total CSI spend was R173 million, a 51% increase over 2014. This is due to the first time reporting of the CSI spend in rest of Africa (ROA). Our CSI spend in South Africa and outside Africa (including Liberty) for 2015 was R129 million (2014: R115 million).
In 2015, we improved the CSI governance processes in our ROA operations. We approved a framework and set of guiding principles requiring each operation to have a CSI policy in place that sets out CSI principles, governance structures, roles and responsibilities, reporting requirements and the prevention and management of conflicts of interest. The principles clearly define what constitutes CSI spend and this is signed off by the chief executive of each operation. We have set a CSI expenditure target for all our ROA operations of 1% net profit after tax. In 2015, each operation submitted an annual CSI expenditure and activity report to the Group Social and Ethics Committee.
Given the unique socio-economic challenges of each country, every operation is required to select no more than three relevant focus areas, with at least one area being either education or healthcare. We also developed a Pan-African partnership with the Global Fund and our ROA operations are encouraged, but not required, to participate in this initiative.
|1||This is an allocation made available to the provincial chief executives to support relevant CSI initiatives in their provinces.|
|2||This includes donations made at the discretion of the chief executives. For 2015, this included contributions towards the University of the Witwatersrand, an early childhood development internship at St Peter’s Preparatory School, Johannesburg Holocaust & Genocide Centre and the South African Red Cross Society (relief for victims of xenophobic attacks).|
According to research conducted by Standard Bank in 2014, based on the Living Standards Measure (a proven methodology widely employed in South Africa), there were 15 million middle class households across Angola, Ethiopia, Ghana, Kenya, Mozambique, Nigeria, South Sudan, Sudan, Tanzania, Uganda and Zambia. These countries together account for half of Africa’s total gross domestic product (GDP) and half its population. While there has been meaningful growth in individual income, 86% of households across these countries remain within the low-income band, with most people still living on or below the poverty line, measured as those with a daily income of USD2 or less.
Finding ways to include the millions of economically active people in Africa who fall outside the mainstream financial sector is essential to our sustained profitability and could potentially contribute to the broader socio-economic development potential of the countries in which we operate.
The inclusive banking market in South Africa is estimated to account for 84% of the banked population. Our strategy is to provide banking products and services that are simple, transparent, convenient and affordable to financially active people who typically earn less than R8 000 a month. Effectively reaching the unbanked or under-banked market depends on understanding the needs and requirements of these customers. Accordingly, our Inclusive Banking unit conducts community needs assessments to determine the appropriateness of our products and services to the low-income market.
We aim to increase volume and revenue in our Inclusive Banking business while driving down our acquisition, origination and servicing costs. We concentrate on selective acquisitions and on providing products based on customer needs. We focus on places of employment as channels to acquire new customers and offer a value proposition that is relevant to both employers and their employees.
Targeted investment refers to our debt financing, credit extension, or equity investment in activities that aim to address the gaps or backlogs in South Africa’s economic development including electricity production and distribution, roads and rail links, large-scale public transport projects and government head offices. Calculated as a cumulative balance from 2012, as per the FS Codes, our weighted qualifying targeted investments amounted to R24.3 billion (2014: R21.1 billion) at December 2015. The debt and equity financing we provide to public or private sector infrastructure projects that support social and economic activity in historically underserviced areas is included in this amount. At December 2015, our total weighted transformational infrastructure lending amounted to R3.2 billion. We will continue to invest in power and rail and in the longer term, we hope to support the development of South Africa’s water resources and sanitation infrastructure.
Through our membership of BASA, we work with government to find ways of eliminating funding challenges. Given the breadth and reach of our franchise and our extensive experience in deal origination, we are competitive against our local peers in terms of our empowerment financing.
In the affordable housing market, our approach is to finance quality affordable housing units priced mainly between R350 000 and R670 000, with the average bond worth about R370 000. The household income level for units we finance is generally between R5 500 and R19 000 a month. We are currently the biggest affordable housing mortgage lender in South Africa, holding a 35% share of the market.
Our borrower education course is voluntary and provides first-time home buyers with information on the processes involved when buying a home and the obligations of the parties involved in a housing transaction, and also helps homeowners make sense of key terms. The course is delivered through face-to-face training and online. In 2015, 2 536 affordable housing customers took up the training. The accumulated affordable housing home loan book value increased to R23.8 billion from 103 824 accounts, an increase from book value of R21.3 billion in 2014 from 99 959 accounts.
SMEs in Africa face a range of challenges, including poor infrastructure, high interest rate environments and increasing regulation, poor access to markets and limited general business management skills, as well as increasing competition from corporate brands and foreign multinationals. Accessing growth finance and start-up capital is also difficult as most SMEs do not have reliable financial statements and do not channel all their cash through bank accounts. In addition, currency fluctuation is a challenge for SMEs trading imported goods. To grow our share of the SME market in Africa, we focus on developing solutions that help our SME customers address these challenges and optimise their cash flow.
The SME sector accounts for more than half of South Africa’s GDP and is the biggest private sector employer and job creator in the economy, making it essential to the country’s long-term growth and transformation. Our aim is to play a competitive role in effectively banking and developing this market. Our long-term objective is to assist SMEs in fast-developing sectors such as business and financial services, computer and IT services and the construction industry, as these sectors are generally highly computer literate and provide the opportunity to introduce innovative, digitally-based banking services.
We work with provincial and local government departments, the Department of Trade and Industry, SME development agencies and our corporate customers to address the needs of the SME sector in South Africa. An example is the South African government’s focus on township economic development as a mechanism for achieving transformation. Our Group Policy, Advocacy and Sustainability team helped support this objective by hosting the ‘eKasi Rising’ dialogue in Jabulani, Soweto in September 2015. This was attended by representatives from SBG, National Treasury, the Department of Small Business Development, the Auditor-General’s office, the National Department of Human Settlement, the Gauteng Provisional Department, Gauteng metros and local entrepreneurs.
We provide SME customers with a comprehensive range of banking products and services as well as wealth management solutions, covering the full range of their banking needs. For our small, micro and start-up customers we provide value-adding services to address common challenges, and which we believe improve their prospects for survival and growth. These include discounted accounting packages and business management training. At December 2015, we had banked 646 394 small, micro and start-up businesses, a 7% increase from 2014 (2014: 601 645).
Enterprise development is about ensuring that SMEs have meaningful opportunities to access markets, finance and long-term business development. We look to develop innovative, commercially viable interventions that provide support to black-owned and black women‑owned SMEs.
Some SMEs are just too small to offer corporate clients economies of scale, and complex tender and compliance requirements in corporate supply chains can prevent their entry into this market. There is also a need for business development and technical support to ensure SMEs that have won supply chain contracts are able to deliver to the required quality standards.
This full service banking product, designed for start-up businesses, offers simple, efficient solutions to make and receive payments. It also enables business owners to insure their personal investment in the business. BizLaunch is available to any new business, including sole proprietors with no trading history, as well as informal enterprises that previously used personal accounts to trade. Value-adding services and products have been included.
This online platform for SMEs provides expert advice on developing systems, streamlining operations, improving the day-to-day running of a business and improving its growth prospects. It also offers the latest news, trends, statistics and solutions on general business, finance, agriculture and franchising, and allows users to interact with other business owners online.
Our SME products and services are offered in all our ROA countries of operation, with particular emphasis on Ghana, Kenya, Malawi, Nigeria, Tanzania, Uganda and Zambia. The Business Banking sales app for tablets enables our sales force and relationship managers to update customer information timeously and to digitally conduct a needs analysis with SME owners, providing financial recommendations based on the customer’s specific business. We provide financial services to 330 498 (2014: 271 176) SMEs across our African businesses outside South Africa. During the year, we focused on banking the formalised SME segment and the upper end of the SME market.
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