Bank­ing on Africa

The con­ti­nent 's nan­cial sec­tor pre­sents big op­por­tu­ni­ties

Business Traveler (USA) - - FRONT PAGE - By Jane Labous

The good thing about ATMs in West Africa is that, in­vari­ably, they’re housed in air con­di­tioned booths, pro­vid­ing a wel­come respite from the sun. The down­sides? Well, cash ma­chines are few and far be­tween, sta­tioned only at the swanki­est banks or ho­tels in the chicest sec­tions of the re­gion’s cap­i­tals. There are many ATMs in Dakar; sev­eral in Ba­mako; only one that I re­cently found in Mon­rovia.

And some­times (of­ten) they refuse to work, or – as in my case, one swel­ter­ing af­ter­noon at EcoBank in Dakar – swal­low your card. I was left with lit­tle choice but to ask the se­cu­rity guard sta­tioned out­side (an­other hint that ATMs are still con­sid­ered a lux­ury for the very rich) to watch the ma­chine while I asked the staff to re­trieve it. They re­fused.

Af­ter a Kafkaesque ar­gu­ment in which I ex­plained that I wouldn’t have to prove my ID if their ma­chine had not swal­lowed my card in the first place, I was obliged to take a taxi to my apart­ment, re­trieve my pass­port, come all the way back and present it for in­spec­tion be­fore the woman at the desk would re­turn my im­pounded credit card to me.

So it goes for bank cus­tomers in Africa. Then again, it’s hardly sur­pris­ing that ATMs don’t work when some 80 per­cent of sub-Sa­ha­ran Africa’s adult pop­u­la­tion – that is, 326 mil­lion people – do not use fi­nan­cial ser­vices. Only 24 per­cent have an ac­count at a for­mal fi­nan­cial in­sti­tu­tion. In other words, only one in four adults has a bank ac­count, and the rest are more likely to be stash­ing cash be­neath their prover­bial mat­tresses.

Yet this be­lies the fact that the rise of Africa’s fi­nan­cial ser­vices in­dus­try in re­cent years has been ex­tremely buoy­ant. An emerg­ing mid­dle class is fuel­ing growth, mean­ing more as­sets to be in­vested by in­di­vid­u­als and more projects to be fi­nanced for cor­po­rate cus­tomers.

In­di­rectly, this also means there are more multi­na­tional com­pa­nies re­quir­ing greater trans­parency in bank­ing. This is good news both for for­eign in­vestors and, more im­por­tantly, for Africans. As one an­a­lyst puts it, the bank­ing in­dus­try al­ways re­flects the wider eco­nomic cli­mate, and a thriv­ing one is one of the surest ways to achieve long-term poverty re­duc­tion across the con­ti­nent.

Room to grow

Ac­cord­ing to Anthony Thun­strom, chief op­er­at­ing of­fi­cer of KPMG’s Africa fi­nan­cial ser­vices team, a num­ber of fac­tors un­der­pin the sec­tor’s growth. “These in­clude Africa’s rapidly emerg­ing mid­dle class and a sharp in­crease in ur­ban­iza­tion, which, com­bined, has led to a higher de­mand for ser­vices in gen­eral, ”he says.

Sig­nif­i­cant de­vel­op­ment and re­form of the fi­nan­cial sec­tor, as well as a tight­en­ing of bank­ing reg­u­la­tions in a num­ber of economies, have also helped, Thun­strom says, as has a re­duc­tion in bar­ri­ers to en­try into the re­tail bank­ing sec­tor.

To­day, Africa’s econ­omy is much stronger than it was ten years ago, helped by im­prov­ing democ­ra­cies, deep­en­ing

trade links with the rest of the world, and in­vest­ment in in­fra­struc­ture projects, with boom­ing emerg­ing mar­kets in­clud­ing oil­rich Nigeria and Ghana.

The scope for banks is enor­mous, with pen­e­tra­tion so low in some coun­tries that it leaves a wide open mar­ket for in­vestors. The 326 mil­lion people cur­rently not us­ing fi­nan­cial ser­vices are the in­dus­try’s fu­ture con­sumers. While Mau­ri­tius, South Africa and Botswana lead with more than 50 per­cent pen­e­tra­tion, the rest of the con­ti­nent veers be­tween 20 and 50 per­cent. Tan­za­nia, Mau­ri­ta­nia, Sene­gal, Ivory Coast, So­ma­lia, Eritrea, Cameroon, Sudan and the Demo­cratic Repub­lic of the Congo all lag be­hind with a pen­e­tra­tion rate of less than 20 per­cent.

There are many rea­sons for this low level of in­clu­sion. De­liv­er­ing prod­ucts to re­mote, poor cus­tomers is dif­fi­cult. In­suf­fi­cient funds, un­sta­ble in­comes, high trans­ac­tion costs and people liv­ing vast dis­tances from fi­nan­cial in­sti­tu­tions all con­trib­ute, as does a wide­spread dis­trust of for­mal bank­ing struc­tures among poorer people.

Volatile lo­cal cur­ren­cies, oc­ca­sional cor­rup­tion, fraud and po­lit­i­cal in­sta­bil­ity, and a lack of in­fra­struc­ture can also be risks, al­though these are bal­anced by the fact that brands with a solid rep­u­ta­tion are highly val­ued.

The chal­lenge for banks is tap­ping into these huge lower-in­come and un­banked sec­tors of so­ci­eties. It re­quires ed­u­cated, so­cially aware in­no­va­tions and thought­ful tai­lor­ing of prod­ucts to the con­sumer.

“By some es­ti­mates, 95 per­cent of the al­most 500 mil­lion adults in sub-Sa­ha­ran Africa earn­ing less than $10 a day have no ac­cess to bank ac­counts, ”Thun­strom says. “If this group were to be­come part of the for­mal­ized bank­ing sec­tor, this could lead to a sig­nif­i­cant in­crease in new de­posits.”

Where It’s At

Bank­ing hotspots in­clude South Africa, where many of the prin­ci­pal pan-African banks are based, Kenya, Egypt, Morocco, Al­ge­ria and Nigeria. Mau­ri­tius has also lately emerged as a tax haven and is clearly tak­ing ad­van­tage of its lo­ca­tion in the mid­dle of In­dian Ocean to be­come a bank­ing hub and con­nec­tion point for trade be­tween Africa and Asia.

“To­day, GDP per capita in terms of pur­chas­ing power par­ity is at $15,649 in Mau­ri­tius, ”says David Gy­ori, man­ag­ing di­rec­tor of Xal­lis Con­sult­ing, which ad­vises banks and in­sur­ers with a par­tic­u­lar fo­cus on Africa. “Mean­while, Kenya has a bank­ing sys­tem that is mod­ern­iz­ing quickly. Mo­bile pay­ments us­ing cell­phones are surg­ing, Kenyan banks are ex­pand­ing cross-bor­der and banks are grow­ing their branch net­works.”

The largest global banks are also the most ac­tive on the con­ti­nent. Citibank, HSBC, So­ci­eté Générale, Stan­dard Char­tered, BNP Paribas, ABN Amro and Bar­clays are fron­trun­ners, while three of the four big­gest Chi­nese banks are show­ing in­creas­ing ac­tiv­ity as well –

African banks, al­though smaller, ar­guably have an ad­van­tage – they un­der­stand their lo­cal mar­kets very well

Bank of China, China De­vel­op­ment Bank, and the In­dus­trial and Commercial Bank of China.

African banks, al­though smaller, ar­guably have an ad­van­tage – they un­der­stand their lo­cal mar­kets very well, and many are in­stalling ef­fi­cient elec­tronic sys­tems that may even be more tech­no­log­i­cally ad­vanced than ex­ist­ing ones in the West.

The largest African bank is Stan­dard Bank Group. A South African com­pany, it has been op­er­at­ing for 151 years, is ac­tive in 20 coun­tries and has close to $200 bil­lion of as­sets. Sim Tsha­bal­ala, its chief ex­ec­u­tive, says:“Our po­si­tion­ing in Africa re­flects our con­fi­dence in its eco­nomic prospects.”

Stan­dard Bank Group of South Africa is the sec­ond-largest bank on the con­ti­nent, fol­lowed by Absa Group, Firstrand and Ned­bank. The sixth-largest is the Na­tional Bank of Egypt, fol­lowed by two Moroc­can com­pa­nies, At­ti­jari­wafa Bank and BCP. The fa­mous Togo-based, pan-African EcoBank, which op­er­ates in 13 coun­tries, is only the 14th-largest bank in Africa, with to­tal

as­sets in the $20 bil­lion range. The First Bank of Nigeria leads in that coun­try with as­sets of $18 bil­lion.

Such banks are still small fry on a global scale. “A strik­ing num­ber is that the to­tal as­sets of the Nige­rian bank­ing sys­tem are around $152 bil­lion, while HSBC alone is more than 20 times larger, ” Gy­ori says.

Still, in­ter­na­tional card com­pa­nies are show­ing in­ter­est. MasterCard is es­pe­cially ac­tive in Africa, ahead of Visa and Amer­i­can Ex­press in terms of in­vest­ments. Bob Di­a­mond, for­mer chief ex­ec­u­tive of Bar­clays, also has his eye on the con­ti­nent. In De­cem­ber last year he asked in­vestors for $250 mil­lion to be al­lo­cated to in­vest­ment in the sub-Sa­ha­ran African bank­ing sec­tor.

A Mat­ter of Trust

While banks re­main the back­bone of Africa’s fi­nan­cial sys­tems, a num­ber of al­ter­na­tive fi­nanc­ing op­tions ex­ist, which are more af­ford­able for poor people and are eas­ier to be el­i­gi­ble for than or­di­nary banks. This is so im­por­tant on a con­ti­nent where mil­lions of low-in­come people live

The rise of Africa’s fi­nan­cial ser­vices in­dus­try has been ex­tremely buoy­ant, with an emerg­ing mid­dle class fuel­ing growth

in vil­lages far from the near­est city, with­out ac­cess to a bank or ATM. Many of the older gen­er­a­tion are il­lit­er­ate and need help to un­der­stand and trust fi­nan­cial sys­tems.

Nick Hughes, founder of M-Pesa, a mo­bile-based money trans­fer ser­vice from Sa­fari­com (Kenya) and Vo­da­com (Tan­za­nia), says this con­sumer has par­tic­u­lar sav­ing and bor­row­ing re­quire­ments. “Many con­sumers not cur­rently in the for­mal bank­ing sec­tor do not need tra­di­tional bank­ing ser­vices, ”he points out.

“They re­quire prod­ucts that deal with real-life is­sues like man­ag­ing ir­reg­u­lar cash flows, help­ing them re­spond quickly to chang­ing cir­cum­stances and find­ing ways to grow small sav­ings – not good old­fash­ioned fixed loans that quickly de­fault when pay­ments are missed.”

Some in­ter­na­tional non-profit or­ga­ni­za­tions run “sav­ings groups, ”a low-risk form of mi­cro­fi­nance based on mem­bers ’own sav­ings rather than credit from ex­ter­nal fi­nan­cial in­sti­tu­tions. The groups typ­i­cally com­prise 15 to 30 people who pool their money dur­ing reg­u­lar

meet­ings. Glob­ally, by Oc­to­ber last year, sav­ings groups were es­ti­mated to have reached more than 8.6 mil­lion people, pri­mar­ily women, the large ma­jor­ity in sub-Sa­ha­ran Africa.

Plan In­ter­na­tional is a non-profit or­ga­ni­za­tion that works with Bar­clays’ Bank­ing on Change project to de­mys­tify banks, deliver train­ing in fi­nan­cial lit­er­acy and busi­ness skills, and help sav­ings groups to es­tab­lish commercial re­la­tion­ships.

In a re­cent re­port from Plan, Yale mi­cro­fi­nance econ­o­mist Dean Kar­lan ar­gued that such ini­tia­tives could do the ground­work in con­vinc­ing the poor to trust for­mal fi­nan­cial in­sti­tu­tions. In this way, he said, the non­profit com­mu­nity was clear­ing the path for for­mal in­sti­tu­tions to pro­vide ser­vices to hard-up people in Africa.

Gy­ori agrees that the key for banks to suc­ceed is to help these ris­ing con­sumers on their way to bank­ing by of­fer­ing ad­vice and ed­u­ca­tion about their op­tions. “A con­struc­tive and prof­itable role that an in­ter­na­tional bank can ful­fil in Africa is to help the African con­sumer rise to be­come a mid­dle class cit­i­zen,” the con­sul­tant says.“75 per­cent of the pop­u­la­tion is un­banked. They need more than prod­ucts – they need tools to be­come cit­i­zens with elab­o­rate bank­ing needs and the knowl­edge to ar­tic­u­late these,” he adds.

“This road to fi­nan­cial lit­er­acy is a win-win jour­ney if done in a pa­tient, re­spon­si­ble and pro­fes­sional way.”

Phone Home

Per­haps the most im­por­tant in­no­va­tion to come to per­sonal fi­nance in Africa re­cently has been mo­bile bank­ing. Mo­bile phone sub­scrip­tions in sub-Sa­ha­ran Africa have risen from 90 mil­lion to 475 mil­lion in seven years. In some African coun­tries, more people have ac­cess to a mo­bile phone than to clean wa­ter, a bank ac­count or elec­tric­ity.

Africa, which has al­ways had limited land­lines, now has an ar­ray of in­ex­pen­sive mo­bile net­works, and the con­ti­nent has vig­or­ously em­braced tech­nol­ogy and so­cial me­dia. Ac­cord­ing to the World Bank, 16 per­cent of adults in Sub-Sa­ha­ran Africa re­port us­ing a mo­bile phone to send or re­ceive money in the 12 months prior to May 2013.

Most note­wor­thy is M-Pesa (M for mo­bile, pesa for money in Swahili), widely con­sid­ered to be one of the most rev­o­lu­tion­ary tech­no­log­i­cal de­vel­op­ments any­where in re­cent times. The ser­vice had reached 10.5 mil­lion users by May last year, and in 2014 most of Kenya’s pop­u­la­tion uses it, ac­cord­ing to Hughes.

It pro­vides ru­ral res­i­dents with ac­cess to af­ford­able fi­nan­cial ser­vices, al­low­ing users to de­posit, with­draw and trans­fer money via text mes­sage. It means they can send money to rel­a­tives and pay for shop­ping,

In some African coun­tries, more people have ac­cess to a mo­bile phone than to clean wa­ter, a bank ac­count or elec­tric­ity

util­ity bills or a taxi home, all on their mo­bile de­vices. Many “un­banked” Africans will go straight to hav­ing an elec­tronic wal­let – a de­vel­op­ment of enor­mous sig­nif­i­cance in a re­gion where trans­port in­fra­struc­ture is so poor.

“In Kenya and Tan­za­nia, the plat­form does mil­lions of trans­ac­tions each day now,” Hughes says. “We are start­ing to see sim­i­lar schemes get to scale in other parts of Africa. I pre­dict that in ten years, most fi­nan­cial ser­vices [in Africa] will be de­liv­ered over the mo­bile chan­nel – it’s the only low-cost way to reach people on low in­comes in any part of the con­ti­nent.”

Mo­bile bank­ing is so im­por­tant that big in­sti­tu­tions that do not make it part of their prod­uct for the con­ti­nent will be left be­hind. “Look at Sene­gal, ”Gy­ori says. “While bank pen­e­tra­tion re­mains low, at 12 per­cent, its mo­bile phone pen­e­tra­tion is 77 per­cent. It has three mo­bile net­work oper­a­tors pro­vid­ing money trans­fer and wal­let ser­vices in part­ner­ship with banks. I be­lieve that big in­sti­tu­tions will later trans­fer back the knowl­edge gained in mo­bile bank­ing in Africa to their ma­ture home mar­kets.”

It is cer­tain that mo­bile bank­ing is the way for­ward for Africa, mak­ing the con­ti­nent an ex­cit­ing and lu­cra­tive space for the bank­ing in­dus­try. And, as young people be­come fi­nan­cially ed­u­cated and ex­pe­ri­enced, they will be­come am­bas­sadors for the sec­tor. Gy­ori says: “My es­ti­ma­tion is that when pen­e­tra­tion hits 50 per­cent or so, bank­ing will be­come kind of chic.” BT

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.