The VBS Mutual Bank scandal would not have happened if it weren’t for unethical management and a heavy dose of incompetence.

But just how much is the regulatory framework to blame? On the face of it, the mutual bank structure looks like a sound model — particularly in a developing country.

It seems to follow an African concept of shared values: when investors make deposits, they buy ownership stakes in the bank and can vote at shareholders’ and members’ meetings.

The concept is widely credited with having begun in 1810, when the reverend Henry Duncan started the Savings & Friendly Society in the slums of Scotland. It was meant to encourage a savings culture, uplifting poorer communities in the process. This is the philosophy that underpinned SA’s first mutual banks, like the GBS Mutual Bank in the Eastern Cape, which opened its doors in 1877 and was then called Grahamstown Building Society.

A similar concept underscored the building societies, which gained traction in SA in the middle of the 20th century. Later, some of those building societies converted to commercial banks or were swallowed by big banks: NBS and Perm were absorbed into Nedbank; United and Allied were absorbed into Absa.

In the life insurance sector, there are still two successful mid-sized mutual banks: Avbob, which focuses on burial and funeral products; and the Professional Provident Society, which is now branded as PPS. But while PPS has a large lobby of lawyers, doctors and accountants who make a nuisance of themselves at its AGM, the VBS client base is rural and poor.

Two large companies that eschewed this mutual structure were Old Mutual and Sanlam, which demutualised in the late 1990s to avoid the restrictions of this sort of structure.

But there is still a perceived risk in putting your money in a mutual bank. This risk became very real at VBS, which took more than R1.5bn from municipalities, even though the Municipalities Act does not allow mutual banks to take deposits from town councils. There is also the case of Finbond Mutual Bank, which still hangs on to its mutual status — though all the key decisions are made by the executives of its management company, Finbond Group.

Besides its 408 branches in SA, Finbond also runs 223 microlenders in North America with names like Cash in a Flash and Cash Shop. Its biggest footprint is in Louisiana, the second-poorest state in the US, and its tentacles have expanded into the poorest of all, Mississippi.

This appears to be the exact opposite of what a mutual bank was supposed to be: an institution to encourage thrift and self-reliance.

Nonetheless, Finbond is the only mutual bank with a national footprint. Though it is listed on the JSE, it has a market capitalisation of R3.8bn — well below the R100bn value of microlender-turned-bank Capitec.

Yet Finbond has a 38% market share in the two-and three-month loan market. The average loan size is R1,479 and the average term is 3.7 months. The cash keeps circulating, as long as Finbond is careful in its client vetting.

While the VBS saga has led many to write an obituary for mutual banks, one of the new "all digital" banks, Bank Zero, has been given a provisional mutual bank licence.

Bank Zero was started by former FNB boss Michael Jordaan and Yatin Narsai, who ran FNB Retail. Narsai says that by applying for a mutual bank licence, the founders did not have to deal with the National Credit Regulator. However, Bank Zero will have more restrictions than the existing mutual banks, as it will not offer loans.

The other mutual banks do offer loans, but they don’t have the extensive menu of products offered by the commercial banks.

Narsai says another attraction of the mutual bank structure is capital efficiency.

"The mutual bank structure was not the reason for the collapse of VBS Bank.

"Rather, it appears to be the unethical practices by management and directors. This, combined with the failure of corporate governance, can happen within any type of bank or corporate," he says.

He’s not wrong. But there was nothing subtle in the VBS fraud. While VBS reported to the SA Reserve Bank that it held cash of R144m, curator Anoosh Rooplal could find only R4m.

Jordaan says the mutual bank concept dovetails nicely with the rise in social media communities. For this reason, he says the Bank Zero app will borrow from Facebook, WhatsApp, Twitter and Instagram.

Inevitably, Jordaan speaks of the "feel-good" aspect of mutuality, and how it can nurture a savings culture in SA. This is because a mutual bank can pass cost benefits to customers and help create financial communities through clubs, families and businesses.

Bank Zero has all the great marketing you’d expect from a consummate salesman such as Jordaan. The other new "challenger" banks, like TymeDigital, are going the full commercial banking route.

It is highly unlikely that Discovery Bank will be a mutual bank: it may fit with the group’s shared-value philosophy, but it would mean too much shareholder democracy for the group’s taste.