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«64664 Public Disclosure Authorized FINANCING Public Disclosure Authorized AFRICA Public Disclosure Authorized THROUGH THE CRISIS AND BEYOND Thorsten ...»

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Public Disclosure Authorized


Public Disclosure Authorized


Public Disclosure Authorized



Thorsten Beck, Samuel Munzele Maimbo,

Issa Faye, Thouraya Triki

blic Disclosure Authorized

Financing Africa

Through the Crisis and Beyond

Financing Africa

Through the Crisis and Beyond

Thorsten Beck

Samuel Munzele Maimbo

Issa Faye

Thouraya Triki

Washington, DC

© 2011 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved This volume is a product of the staff of the African Development Bank, the German Federal Ministry for Economic Cooperation and Development, and the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of the African Development Bank and the World Bank or the governments they represent or of the German Federal Ministry for Economic Cooperation and Development.

The African Development Bank, the German Federal Ministry for Economic Cooperation and Development, and the World Bank do not guarantee the accuracy of the data included in this work.

The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the African Development Bank, the German Federal Ministry for Economic Cooperation and Development, or the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development / The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly.

For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA;

telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com.

All other queries on rights and licenses, including subsidiary rights, should be addressed to

the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax:

202-522-2422; e-mail: pubrights@worldbank.org.

ISBN: 978-0-8213-8797-9 eISBN: 978-0-8213-8798-6 DOI: 10.1596/978-0-8213-8797-9 Library of Congress Cataloging-in-Publication Data Beck, Thorsten.

Financing Africa : through the crisis and beyond / Thorsten Beck... [et al.].

p. cm.

Includes bibliographical references and index.

ISBN 978-0-8213-8797-9—ISBN 978-0-8213-8798-6 (electronic)

1. Financial institutions—Africa. 2. Finance—Africa. 3. Monetary policy—Africa. I. Title.

HG187.5.A2B43 2011 332.096—dc23 Cover design by Debra Naylor of Naylor Design.


–  –  –

For too long, firms and households in Africa have faced severe constraints to affordable finance—costly fees and commissions, insufficient and inefficient financial infrastructure, and short tenor, to name a few. But things are changing, albeit slowly. This book, a joint effort of the African Development Bank, the German Federal Ministry of Economic Cooperation and Development, and the World Bank, demonstrates that Africa is making progress in relaxing these constraints.

New players and products, enabled by new technologies and business models, have helped broaden access to financial services, especially savings and payment products. Critically, African finance has been stable for quite a while now; after a peak of banking crises in the 1980s, there have been few systemic banking crises since then.

Despite the recent global financial crisis, banks in Africa are, on average, well capitalized and liquid.

At the same time, Africa faces persistent but not insurmountable challenges, namely its small scale, informality, volatility, and poor governance. Many firms and most households are still excluded from access to financial services, especially longterm finance. Infrastructure financing needs remain largely unmet. Agricultural finance has been ignored by commercial financiers for being too high-cost and high-risk, aggravated by the same challenges enumerated above.

Financing Africa: Through the Crisis and Beyond is a call to arms for a new approach to Africa’s financial sector development. First, policy makers should focus on increasing competition within and outside the banking sector to foster innovation. This implies a more open regulatory mindset, possibly reversing the usual timeline of legislation-regulation-innovation for new players and products. It also implies expanding traditional infrastructure, such as credit registries and payment systems beyond banks. Second, the focus should be on services rather than existing institutions and markets. Expanding provision of payment, savings and other

xixii Foreword

financial services to the unbanked might mean looking beyond existing institutions, products, and delivery channels, such as banks, traditional checking accounts, and brick-and-mortar branches. Third, we should focus on the demand constraints as well as the supply ones; expand financial literacy programs for households and enterprises; and address nonfinancial constraints, especially for small enterprises and in rural areas.

All financial sector policy is local. To reap the benefits of globalization, regional integration, and technology, policy makers have to recognize the politics of financial deepening and build constituencies for financial sector reform. While the challenges of expanding access, lengthening contracts, and safeguarding the financial system are similar, the ways of addressing them will depend on the circumstances and context of each country.

With its cautiously optimistic tone, this book creates an opportunity for Africa’s policy makers, private sector, civil society, and development partners to harness the progress of the past as a way to address the challenges of the future and enable the financial sector to play its rightful role in Africa’s transformation.

Shantayanan Devarajan Chief Economist, Africa Region World Bank Mthuli Ncube Chief Economist African Development Bank Thomas Albert Director Africa German Federal Ministry for Economic Cooperation and Development Acknowledgments The principal authors of this report are Thorsten Beck, Samuel Munzele Maimbo, Issa Faye, and Thouraya Triki. The report also draws on draft material specially provided by Mike Coates, Robert Cull, Florence Dafe, Michael Fuchs, Robin Hofmeister, Thomas Losse-Müller, Margaret J. Miller, Thilasoni Benjamin Musuku, David Porteous, Lemma Senbet, Mircea Trandafir, Simon Christopher Walley, Makayo Witte, and Alice Zanza. Excellent research assistance has been provided by Mohammad Hosseini, Thierry Kangoye, Ines Mahjoub, Pranav Ramkrishnan, Tania Saranga, David Symington, Radomir Todorov, and, in particular, Alexandra Jarotschkin, who also contributed with textual revisions on the completion of the consultation process. We are grateful to Stephen McGroarty and Susan Graham and the World Bank Office of the Publisher for coordinating the book design, editing, and production process. The data collection effort on financial structure and regulations in Africa was carried out by the African Development Bank’s Department of Statistics led by Charles L. Lufumpa (Director) and, especially, the team of Beejaye Kokil (Division Manager), Letsera Nirina (Statistician), and Tarak Hasni and Slaheddin Saidi (Statisticians-Consultants).

External peer reviewers for the study were Patrick Honohan, (Governor, Central Bank of Ireland), Perks Ligoya (Governor, Reserve Bank of Malawi), Louis Kasekende (Deputy Governor, Bank of Uganda), Laurence Harris (Professor of Economics, School of Oriental and African Studies, University of London), Allen Franklin (Professor of Finance and Economics, The Wharton School), Mohammed Omran (Vice Chairman, Insurance Holding Company, Arab Republic of Egypt), Ghada Waly (Assistant Resident Representative, UN Development Programme, Egypt), Ismail Douiri (Co-Chief Executive Officer, Attijariwafa Bank, Morocco), Ziad Oueslati (Founding Partner Tuninvest-Finance Group), Bouakez Hafedh (Professor of Economics, HEC Montreal), and Lemma Senbet (Professor of Finance, University of Maryland).

xiii xiv Acknowledgments The African Development Bank and World Bank reviewers were Simon C. Bell, Mohamed Damak, Asli Demirgüç-Kunt, James Emery, Michael Fuchs, Devinder Goyal, Leonce Ndikumana, Gabriel Victorien Mougani, Charles Muthuti, Sebastian O. Okeke, Tilahun Temesguen, and Désiré Vencatachellum.

We are grateful for the insights of officials and market participants visited for the study in Egypt, Kenya, Libya, Mauritius, Morocco, Senegal, South Africa, Tunisia, and Uganda. We have benefited from comments during consultation events in Dakar, Frankfurt, Johannesburg, Nairobi, Tunis, and Washington, DC. At these events, we appreciate the institutional support we received from the Kenya School of Monetary Studies in Nairobi, the Bankers Association of South Africa, and FinMark Trust in South Africa. We are also grateful for the comments and assistance provided by Ed Al-Hussainy, Abayomi A. Alawode, Henry K. Bagazonzya, Gunhild Berg, Johannes Braun, Irma I. Grundling, Juliet Kairuki, Zachary A. Kaplan, Maya Makanjee, Hannah Messerli, Stephen N. Ndegwa, Ismail Radwan, Oliver Reichert, David Scott, Riham Shendy, and Smita Wagh.

The study was carried out under the overall guidance of Shantayanan Deverajan (Chief Economist, Africa Region, World Bank) and Ncube Mthuli (Chief Economist and Vice-President, African Development Bank). It also benefited from the support and guidance from management: Gabriela Braun and Karen Losse (both Deutsche Gesellschaft für Internationale Zusammenarbeit), Leonce Ndikumana (Director at the Operations Policy Department, African Development Bank), Marilou Uy (Director, Africa Finance and Private Sector, World Bank), and Désiré Vencatachellum (Director of the Research Department, African Development Bank). Coordination and management support was ably provided by the Secretariat of the Making Finance Work for Africa Partnership, led by Stefan Nalletamby (Coordinator) and his team: Habib Attia, Alessandro Girola, Hugues Kamewe, Sarah Mersch, and Carlotta Saporito.

On behalf of the African Development Bank and the World Bank and on their own behalf, the authors are especially grateful to the German Federal Ministry for Economic Cooperation and Development (BMZ) for providing financial support for the preparation of the study.

Abbreviations AIDS acquired immune deficiency syndrome AML anti–money laundering ATI African Trade Insurance ATM automated teller machine BCP Basel Core Principle for Effective Banking Supervision BH Banque de l’Habitat (Tunisia) BRIC Brazil, Russian Federation, India, and China CDG Caisse de Dépôt et de Gestion (Morocco) CEMAC Economic and Monetary Community of Central Africa CFT Combating the Financing of Terrorism CGAP Consultative Group to Assist the Poor DBSA Development Bank of South Africa DFI development finance institution FDI foreign direct investment G-7 Group of Seven G-20 Group of Twenty GDP gross domestic product ICT information and communication technology LBC licensed buying company (Ghana) LIA Libyan Investment Authority m-banking mobile banking MFI microfinance institution MIX Microfinance Information Exchange

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Financing Africa:

Setting the Stage Introduction C autious hope is in the air for finance in Africa. While the global crisis may have dented some of the progress made since the beginning of the 21st century, one feels the optimism and sees the positive trends. A deepening of financial systems can be observed in many African countries, with more financial services, especially credit, provided to more enterprises and households. New players and new products, often enabled by new technologies, have helped broaden access to financial services, especially savings and payment products. Innovative approaches to reaching out to previously unbanked parts of the population go beyond cell phone–based M-Pesa in Kenya and basic transaction accounts, such as Mzansi accounts in South Africa. Competition and innovation dominate African financial systems, and, for every failure, there is now at least one success. However, many challenges remain, and the journey toward deeper, more-efficient, and moreinclusive financial systems will be long and fraught with many difficult choices in many countries in Africa.

Africa’s financial systems have progressed over the past 20 years. Yes, the promise of the efforts at liberalization, privatization, and stabilization in the 1980s has only been partly fulfilled, though African finance has been stable for quite a while now. Since the peak of the banking crises in the 1980s, there have been few systemic banking crises, though pockets of fragility persist, often related to political crisis or deficiencies in governance. On average, banks in Africa are well capitalized and liquid. Still, the benefits of deeper, broader, and cheaper finance have not yet been reaped. Finance in Africa still faces problems of scale and volatility. And the same liquidity that helps reduce volatility and fragility in the financial system is also a sign of the limited intermediation capacity on the continent. Nonetheless, as we discuss below, globalization, technology, and increasing regional integration may provide new opportunities for finance in Africa.

2 Financing Africa: Through the Crisis and Beyond As a consequence of recent positive trends, African financial sectors entered the crisis with a cushion of high levels of capitalization and liquidity. Financial institutions on the continent largely evaded the direct impact of the global financial crisis.

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