How EFF and state bank proponents ignore perils and limitations
A successful state bank would need political independence and lending based on strong economic fundamentals, writes Hanna Ziady
As India’s state banks post record losses, calls for the creation of state-owned banks in SA are mounting, with the EFF seeking to amend the Banks Act to achieve this. State banks, the party says, would provide enterprise finance, housing finance and vehicle finance for all South Africans "in a manner that promotes development, not the narrow pursuit of profits". Without them, the black majority will remain "on the margins of mainstream financial participation", EFF deputy president Floyd Shivambu argued in a recent Daily Maverick article. The EFF is not alone in contending that SA needs a state-owned bank to spur financial inclusion for the poor and for black-owned businesses. But its proponents too easily ignore their perils and limitations. India’s state-owned banks need $32bn in recapitalisation. In many countries that have experimented with state banks, political interests have played a role, leading to patronage-driven lending, which places pressure on public finances and hind...
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