Speech by Finance MEC Ina Cronje Financial Literacy Pilot Ixhiba Cooperative, KwaZulu-Natal Treasury Board Room, Chief Albert Luthuli Street, Pietermaritzburg
27 Oct 2009
Some experts reckon the quickest way to double your money nowadays is to fold it in half and put it back in your pocket. But if that has been the case we would all have been billionaires.
The fact of the matter remains: we all want to see our money increasing. Unfortunately there are no magic tricks for doubling our money. The so-called "magic" tricks have been exposed in the media as scams and cheating. In some cases the crooks literally made some poor souls believe that they could turn newspaper into money!
One of the reasons why the Ixhiba Cooperative was founded was certainly to improve their members' income. A person with high level of self efficacy has the "I can do it" and "I will do it" attitude and this is good. Government encourages self-efficacy has been greatly encouraged by government. It is pleasing to see an increasing number of communities becoming active participants in the reconstruction and development of this province.
There have been many success stories of young people, women and cooperatives that have increased their income significantly through their business ventures.
With the new drive of government to prioritise food security, Ixhiba and other food cooperatives will play an important role in fighting poverty and the rising food prices.
Government has also identified cooperatives as one of the important tools to take farmers, presently in the second economy, into the first economy.
Unfortunately, despite our passion and support cooperatives are generally considered to be underperforming and many have closed their doors. Government is not turning its back on them and we will continue to find ways and means to ameliorate this situation. Our provincial government is currently developing a comprehensive five year Cooperative development programme.
But firstly we need to clear some misconceptions that retard the growth of cooperatives. Cooperatives seem to be the most misunderstood organizations in the world. These are some of the misconceptions that we often hear about cooperatives:
* "Cooperatives are for poor"
Poor people cannot benefit from cooperatives unless they understand them and are capable of participating fully in them. Cooperatives are not semi-public welfare institutions.
* "Cooperatives are social organisations"
Another misconception is the "social organisation" label that has been attached to cooperatives and that they are not recognized as business organisations. The mere fact is that cooperatives are organized to raise the income of their members. One can't imagine raising the income without earning profits. Although they may be more recognised for their collective nature and social benefits for members, co-ops must first and foremost operate as viable enterprises.
Government realises that one needs capital to start a business. Therefore loans are available to kick start viable businesses and cooperatives. But it is not enough to provide finance. Some other elements need to be inserted into the industry, e.g.
- Financial planning for the produce or service to be produced or sold.
- Cash-flow provision as part of the budget and the on going follow-up process.
- Profitability calculations - trying to calculate the profitability and the ability of the products or services to pay back the finance invested and to make to client living.
- Costing and product pricing of all components around the producer.
- Budget, planning and execution.
What I have mentioned here, can be called in a nutshell – "financial literacy."
Financial literacy is not an end in itself but a step-by-step process. It should begin in childhood and continue throughout a person's life all the way to retirement. But financial literary in South Africa and in KwaZulu-Natal in particular is at a very low and almost insignificant level. We know from research that there is a correlation between illiteracy and poverty. Many illiterate people are poor because they lack certain skills that are needed for employment.
We can also draw a line between the high failure rate of small business enterprises and financial illiteracy. In the majority of cases these new establishments’ experiences cash shortages very soon, which force them to close their doors fairly soon after opening. The negative consequences of financial illiteracy on a macro, micro and personal level are not just significant but potentially devastating. Empowering women, youth and cooperative entrepreneurs in business financial literacy is of utmost importance.
To this end the provincial Treasury has embarked on a financial literacy campaign. Today's entrepreneurial financial literacy training of the Ixhiba Cooperative is the beginning of an initiative to give our entrepreneurs a fair chance to succeed. It is part of a pilot training programme. Following the outcome of this initiative and provided that we receive the funding that we applied for at the National Skills Fund, the programme will be offered in more districts.
The programme also includes training for women business organisations, as well as a personal financial literacy module which will focus on school learners in grade 11.
But what makes a literate person financially literate?
A financially literate person is one who:
* understands his or her relationship to money
* discusses and communicates financial issues
* possesses knowledge of banking and credit
* practices money management
* understands the need for protection against unforeseen emergencies
* plans for major life events
* saves and invests for the future
* knows how and where to find information to make effective personal financial choices
From an entrepreneurial point of view financial literacy is the ability to understand business and entrepreneurial financial terms and concepts and to translate that knowledge skilfully into business.
With the understanding and executing of important financial principles and concepts Mrs Buthelezi and her team will be in a position to start reaping the benefits of their hard work. There is nothing wrong with Ixhiba's tomatoes in fact I am assured they are of a high quality. But Ixhiba needs to start making a profit.
Therefore they need to be able to manage their money. And in addition to operational knowledge and financial management, members must also clearly understand their rights, their roles and their functions. No business organisation can afford to have deadwood. I believe only seven of the 11 members are active.
Trust among members would be a vital element in the success of such a group.
Choosing the right partner for a business is like choosing your husband or wife. A financial expert gave the following advice: never make partnership with anyone whom you know for less than three years. No person can put on an act for three years! Human relationships are the most complex problem of our time. In a study that looked at why some cooperatives failed in the United States, the human factor was singled out as the main culprit: poor selection of members, especially those who fail o support their cooperative; members who use the cooperative but fail to take responsibility; members who never ask questions and let a few persons make policy; members who don't attend meetings, etc.
The reason given for the thriving of some US cooperatives include: low administrative and overhead costs; financed by the members (The greater the financing supplied by the members, the more efficient the cooperative); selecting and developing a quality management team; maintaining an open line of communication with members; and developing and implement a systematic method of cooperative education for members, employees and management.
Financial literacy will not guarantee financial success but it can support financial success. It plays a significant role to keep new establishments open. This in turn supports local employment and income creation that will ultimately result in the community economy growing into a vibrant and wealth-creating entity.
But we need to plan financially for that day. Philanthropist business man Warren Buffet, who became the richest man in the world after dethroning Bill Gates in 2009, said, "Someone's sitting in the shade today because someone planted a tree a long time ago."
Issued by: Department of Finance, KwaZulu-Natal Provincial Government
27 October 2009
Issued by: KwaZulu-Natal Provincial Treasury
27 Oct 2009
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