Time for change
• Chapter summary
Through the years, the financial sector has exhibited a posture of resilience in the face of the crises that have enveloped Mozambique. The hidden debt scandal in 2016 and the ensuing financial crisis eroded confidence among foreign investors, leading to several downgrades in the country’s credit ranking. However, this has provided the impetus for a change within the sector. The central bank introduced tougher regulations for lenders, and the sector began an ongoing process of consolidation. Inflation was kept under control, and the exorbitant interest rates of 2018 have decreased noticeably since then. There is now a strong appetite to increase lending and credit to pre-2016 levels and grow investments.
All of this has enabled the sector to become the main point of reference during the current crisis brought about by the COVID-19 pandemic. Following the lockdown measures put in place on April 1, the central bank was quick to implement measures for maintaining stability, such as lowering interest rates and injecting liquidity into the market. This provided debt relief for companies and individual borrowers and stimulated new credit. However, a few months into the crisis, José Reino da Costa, CEO of Millennium BIM, explained in an exclusive TBY interview that banks need to find alternative long-term solutions to support the economy because current measures are only temporary. Only an economic upturn will ultimately relieve banks of present pressure, and in turn, this will depend mostly on FDI and confidence in the market. With the resumption of IMF support and LNG megaprojects in Area 1 and 4, the future certainly is not grim, but banks will first need to weather the storm known as COVID-19.
Among our interviewees for this chapter, financial inclusion was without a doubt the keyword on everyone’s lips. This is hardly unsurprising given that only 32% of Mozambique’s adult population has a bank account, and only 7% have some type of insurance. For this reason, most of the banking and insurance activity in Mozambique has so far concentrated on the corporate segment. However, according to Rui Barros, CEO of Absa Bank, as the economy is expected to grow by double digits following the start of LNG production, banks and insurance companies are increasingly interested in venturing into retail.
Reaching the “unbanked” is a huge task with a range of potential solutions. Since 2016, the government has been pushing the “One District, One Bank” program, extending the physical footprint of financial institutions across the country. But there is still a long way to go. A more efficient way to push financial inclusion has been through technology, via the “agency banking” model, which is pioneered by Banco Letshego, BancABC, and Millennium BIM, or mobile wallets. This latter option has seen particular buzz in Mozambique, with a growing number of related start-ups participating in the central bank’s Regulatory Sandbox incubator. According to Esselina Macome from FSDMoç, “in five years, the percentage of Mozambicans with a bank account has grown from 20% to 32%, while more than 50% of the population is using mobile money.”
If technology was an increasingly appealing instrument for the sector, the COVID-19 crisis has made it a basic necessity, enabling banks to keep operating despite lockdown measures. In the words of Tawanda Munaiwa, Managing Director of BancABC, “There is no reason why we should force customers to come in and queue in bank branches nowadays. The crisis should serve as a wake-up call for Mozambican banks to abandon the traditional brick-and-mortar model and embrace technology.” ✖