African Bank and Good Business

African Bank has been the focus of recent business news in South  Africa for the past few weeks. Everyone has suddenly become an ‘expert  analyst’ on the woes of African Bank, and what they should have done  differently. Should they have bought Ellerines? Should they have closed  down their savings account offering and allowed for a diverse portfolio  of profits? It’s easy to judge when looking back, but a lot more  difficult to give guiding principles when looking forward.

The recent happenings at African Bank, as well as the subsequent  Moody’s downgrade of the other unsecured lending providers almost seem  like a shadow or a latent ripple effect of the financial crisis that hit  the world in 2008. At that time, ‘capitalist greed’ and ‘deregulation’  were seen as the culprits of the time, and corporates were then seen as  ‘evil’ with subsequent Occupy [Insert Financial Landmark] protests  happening worldwide.

I remember my earlier teachings in my Business Economics class in  grade 9 at Umtata High School. We had to memorize the mantra “The  purpose of business is to maximize shareholder value”. From there, we  learnt what shares were, and that value is maximized by increasing the  ‘value’ of the business, whether owned privately and publicly. And it  seems that this is the teaching that has permeated throughout markets  around the world.

It seems that within business classes of schools and universities,  there is never a focus on what businesses actually do to maximize their  shareholder value. Of course there is advice that what one does should  remain within the bounds of the law, but the relativistic ethics of good  and bad are bound only by the spirit of the age that guides the law  makers. Was African Bank’s business model ethical? Was their business  model of providing unsecured loans good, and not just good for the  business of maximising shareholder value? This is debatable, but I don’t  think so. I will outline just a few of the reasons why:

Some argue that all they do is provide a service to a customer who  has a demand for the service, and it’s not their issue what happens  after that. The fault should be with the customer alone, and not the  financial institution. Such thinking is myopic, and is running away from  responsibility. It is almost like saying that the creators of cocaine  have no role to play in cocaine addictions (if cocaine was legal). Or  the providers of  bank accounts have no responsibility to monitor if  fraud is being conducted on that account.

In a society of high indebtedness, where many struggle paying off  their debts, and where many are blacklisted and ruin their futures and  the futures of those that are dependent on them, adding fuel to the fire  only makes one an accomplice. All people are made in the image of God  and should therefore be treated as such. I would assume that, if those  who are proponents of such unsecured lending would see someone close to  them in that bad debt trap, they would discourage them from continuing  in the practice. Why then do they value one as a human being and another  as a potential profit stream?

The founders of African Bank started it as a vehicle to finance black-owned businesses during Apartheid when restrictions made it very difficult for them to start their  businesses. It was also a savings institution that provided a vehicle  for families to save and build up wealth. Somewhere along the line,  these noble objectives and goals were lost. The value and importance  they saw in their customers was lost, not seeing them with their  inherent value and wanting the best for them, but seeing them as lines on their income statement and wanting the best from them.

Good business is about doing what is right, and maximising  shareholders wealth from that. What is right can’t be measured by  relativistic feelings in one gut, but has to be measured by an objective  standard.

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