Making sense of YWBN Mutual Bank

Investors were left confused on Monday after watching the founder of the Young Women’s Business Network (YWBN), Nthabeleng Likotsi, try to explain how her latest plan to start a mutual bank will work and what will happen to the money received when investors buy shares in the bank.

The YWBN even organised a “financial freedom” march from the Union Buildings to the Reserve Bank in 2018 to highlight the lack of access for women in the financial sector after submitting a licence application to start a mutual bank.

After her virtual press conference that had too many electronic problems and no structure, Likotsi did not directly answer any questions about why investors should invest in her bank and if they would ever see their money again after buying shares for R10 each. It was also not completely clear if she has actually been issued a licence.

With the VBS Mutual Bank saga still fresh in investors’ minds, she did not do much to put investors’ concerns at ease. One thing was clear: she is in desperate need of public relations help to look more credible, but there might not be enough time as investors can only buy shares in the “bank” until 30 June 2021.

What is a mutual bank?

According to the Prudential Authority at the Reserve Bank, the current legislative framework makes provision for three types of banking licences:

• Commercial bank licences in terms of the Banks Act.
• Mutual bank licences in terms of the Mutual Banks Act.
• Cooperative financial institution licences and cooperative bank licences in terms of the Cooperative Banks Act.

The Reserve Bank says the distinction between a commercial bank, mutual bank and cooperative bank is largely based on the differences in the corporate structure defined in the respective acts:

• A commercial bank is a public company owned by its shareholders who are not necessarily depositors or customers.
• A mutual bank is a juristic person and is, in essence, owned by its depositors who qualify as members by virtue of their being shareholders in the juristic person and who are entitled to participate in exercising control at a general meeting of the mutual bank.
• A cooperative bank is an autonomous association of people, united voluntarily to meet their common economic and social needs and aspirations through a jointly owned and democratically controlled enterprise organised and operated on cooperative principles.

Registration of a mutual bank

When a mutual bank is registered, the applicant must:

• First submit an application for authorisation to establish a bank.
• If this is granted, submit an application for registration as a bank within 12 months.
• Adhere to the minimum capital requirement of R10 million for a mutual bank.

According to the prudential authority, all applications are then assessed for compliance with the prescribed legal structure, prudential requirements, corporate governance considerations and public interest considerations in terms of the Mutual Banks Act and various regulations.

However, the prudential authority also reserves the right to amend these requirements and increase them based on the nature, size and complexity as well as risk profile of the entity to be formed. The prudential authority can only grant mutual bank licences with the concurrence of the Financial Conduct Authority (FSCA) in terms of Financial Sector Regulation Act.

Is the YWBN Mutual Bank registered?

A spokesperson for the Reserve Bank said no approval had been granted to YWBN at this stage. “The prudential authority has only granted YWBN authorisation to establish a mutual bank, subject to compliance with extensive conditions before the submission in terms of section 13 of the Mutual Banks Act.”

The prudential authority licensing panel then considers this application to determine if the entity should be licensed with the concurrence of the FSCA. According to the prudential authority it has not yet received YWBN’s section 13 application.

Where to find more information?

The YWBN website is still under construction, but more information is available on a website called shares.ownthebankywbn.co.za under terms and conditions. Here it states that the YWBN is raising capital to capitalise the “Nthabeleng Likotsi Mutual Bank” to comply with the Mutual Banks Act and conditions stipulated by the prudential authority.

In this document it also becomes clear that the bank has actually changed its name to the Nthabeleng Likotsi Mutual Bank, which was decided on at a YWBN special general meeting on 17 April. No reason is given for the name change.

You pay R100 to become a member of the mutual bank before you can buy shares. The document also makes it clear that “the shareholder shall not be entitled to demand redemption of the shares. At the end of the minimum six-year term, the shareholder can sell their stake or reinvest.”

The bank’s board of directors will decide on dividend payouts, only if there is enough money left over after all operating and expansion expenses are met. Participants will be able to exit based on the value of their shares on a willing buyer/willing seller basis.

Interest income, expenses and debt will not be transferred to the bank, but the sum raised from the share scheme will be transferable to the bank at incorporation. Shareholders will only pay for the expenses incurred for the purposes of establishing the bank.

According to the website document, funds raised from the share scheme will be used to establish the bank and primarily for the development of different financial products to serve the needs of SMMEs and private individual customers.

The funds will also be used to buy assets, shore up liquidity for lending, licensing, regulatory capital, human resources and marketing. It will also go towards acquiring and developing proprietary technologies to improve the efficiency of the bank.