Challenges for Financial Sector Reform in Africa Oliver S. Saasa

World Bank Livingstone-SaasaWorld Bank Livingstone-Saasa 1104/22/2304/22/23

Challenges for Challenges for Financial Sector Financial Sector Reform in AfricaReform in Africa

Oliver S. SaasaOliver S. SaasaPremier Consult LimitedPremier Consult Limited

DiscussantDiscussant

Fundamental messages Fundamental messages from the Report worth from the Report worth

stressingstressing


11Finance is essential in Finance is essential in

transforming African economiestransforming African economiesputting African countries on a stronger putting African countries on a stronger

and sustainable growth path by and sustainable growth path by opening-up business opportunities to a opening-up business opportunities to a wider clientele effectivelywider clientele effectively


Zambian example…Zambian example…The Zambian financial sector is The Zambian financial sector is

characterised by high cost of characterised by high cost of borrowing, thin capital markets and borrowing, thin capital markets and absence of financial services in most absence of financial services in most of the rural and peri-urban areas. of the rural and peri-urban areas. Consequently, the financial system Consequently, the financial system has not played a meaningful role in has not played a meaningful role in national development. national development.


22Africa needs more Africa needs more

energetic and more energetic and more innovative financial innovative financial entrepreneursentrepreneursNew technologies – using New technologies – using

cellphones, internet and also cellphones, internet and also new financial techniquesnew financial techniques


33Reformers of African finance should Reformers of African finance should

have an eye on (a) the financing have an eye on (a) the financing needs of sustained economic growth needs of sustained economic growth and (b) catering for the immediate and (b) catering for the immediate needs of poor households and micro-needs of poor households and micro-enterprises. enterprises. The needs of “finance for growth” and The needs of “finance for growth” and

“finance for all” need not be conflictual“finance for all” need not be conflictual


44Access to finance and cost of Access to finance and cost of

finance still a major finance still a major constraint to operation and constraint to operation and growth of African firms much growth of African firms much more than is the case in more than is the case in other regionsother regionsConsequently, African firms Consequently, African firms

finance about 68 per cent of finance about 68 per cent of their investment needs with their investment needs with internal funds.internal funds.


55The phenomenon of a missing middle The phenomenon of a missing middle

in credit provision is real and must in credit provision is real and must be addressed: be addressed:

Medium and large firms are catered to by Medium and large firms are catered to by formal financial institutions, while micro-formal financial institutions, while micro-firms have often access to micro-finance firms have often access to micro-finance institutions. But firms in between these institutions. But firms in between these categories have difficulty finding the funds categories have difficulty finding the funds to expand.to expand.

Elaboration on Main Elaboration on Main Challenges in AfricaChallenges in Africa


Low access often reflect Low access often reflect general economic general economic conditionsconditionsPer capita income Per capita income

enhancement is essentialenhancement is essentialMinimum deposit balances Minimum deposit balances

are often set by banks at are often set by banks at levels that are unattainable levels that are unattainable by the poorby the poor


Financial access is woefully limited Financial access is woefully limited especially in rural areas due to especially in rural areas due to price and price and non-price barriers:non-price barriers:

• Over 700 dollars are required to open Over 700 dollars are required to open an account in Cameroon, an amount an account in Cameroon, an amount higher than the GDP per capita of that higher than the GDP per capita of that country. On the other hand, no country. On the other hand, no minimum amounts are required in minimum amounts are required in South Africa or Swaziland. South Africa or Swaziland.


• Fees to maintain a checking account Fees to maintain a checking account exceed 25 percent of GDP per capita in exceed 25 percent of GDP per capita in Sierra Leone, while there are no such Sierra Leone, while there are no such fees in the Philippines. fees in the Philippines.

• The fees for transferring 250 dollars The fees for transferring 250 dollars internationally are 50 dollars in several internationally are 50 dollars in several African countries, but only 30 cents in African countries, but only 30 cents in Belgium.Belgium.


The requirement of a physical address The requirement of a physical address or of a formal sector job as eligibility or of a formal sector job as eligibility criteria to open an account excludes the criteria to open an account excludes the majority of people in many African majority of people in many African countries, where a large percentage of countries, where a large percentage of the population lives in rural areas and the population lives in rural areas and works in the informal sector.works in the informal sector.


In addition…In addition… limited access to finance especially in rural limited access to finance especially in rural

communities is due to communities is due to sparse population, sparse population, low incomes and poor infrastructurelow incomes and poor infrastructure

Weak delivery of finance for agriculture Weak delivery of finance for agriculture and the rural economyand the rural economy

Documentation requirements to open a Documentation requirements to open a bank account (especially in the context of bank account (especially in the context of money laundering prevention) could also money laundering prevention) could also be quite restrictive to financial access for a be quite restrictive to financial access for a large section of the community.large section of the community.


These fees and These fees and administrative requirements administrative requirements have effectively prevented have effectively prevented the poor from using checking the poor from using checking or savings accounts.or savings accounts.


Something that the report does Something that the report does not seem to have addressed not seem to have addressed

sufficiently…sufficiently…Physical InfrastructurePhysical InfrastructureThe quality of physical infrastructure, The quality of physical infrastructure,

such as electricity networks and such as electricity networks and communications network is communications network is associated with the costs of doing associated with the costs of doing business for banks, necessitating business for banks, necessitating higher minimum balances for savings higher minimum balances for savings accounts and higher fees on loansaccounts and higher fees on loans

The Way ForwardThe Way Forward(3 points…)(3 points…)


11Need for stronger underlying Need for stronger underlying

infrastructures, particularly infrastructures, particularly in the information and legal in the information and legal dimensionsdimensions


22 Strive, through enabling policy and Strive, through enabling policy and

regulatory environment, to increase access regulatory environment, to increase access for households and micro, small and for households and micro, small and medium sized enterprises to formal medium sized enterprises to formal financial services financial services Strategic role of African governments in Strategic role of African governments in

providing a regulatory regime that adequately providing a regulatory regime that adequately protects the depositors and guards against protects the depositors and guards against abuses of the financial system’s integrity abuses of the financial system’s integrity (through money laundering)(through money laundering)

Central bank supervisory role is strategicCentral bank supervisory role is strategic


33Developing and reforming the Developing and reforming the

financial sector is criticalfinancial sector is criticalZambia Example:Zambia Example:

The Financial Sector Dev. Program )FSDP) The Financial Sector Dev. Program )FSDP) aims to, inter alia, improve the financial aims to, inter alia, improve the financial sector, focusing on developing the capital sector, focusing on developing the capital markets, enhancing the role of micro-markets, enhancing the role of micro-financing in the economy, developing rural financing in the economy, developing rural financing, and the strengthening banking financing, and the strengthening banking and non-banking financial institutions. and non-banking financial institutions.

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Challenges for Financial Sector Reform in Africa Oliver S. Saasa

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