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The agenda for financial sector reform in Sub-Saharan Africa

The agenda for financial sector reform in Sub-Saharan Africa. Thorsten Beck. Finance matters for growth – also in Africa. Finance is also pro-poor. Africa’s financial systems are small – in relative…. …and absolute terms. Access to Financial Services is limited….

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The agenda for financial sector reform in Sub-Saharan Africa

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  1. The agenda for financial sector reform in Sub-Saharan Africa Thorsten Beck

  2. Finance matters for growth – also in Africa

  3. Finance is also pro-poor

  4. Africa’s financial systems are small – in relative…

  5. …and absolute terms

  6. Access to Financial Services is limited…

  7. …although there is also variation within the region

  8. Banking is expensive – as can be observed in net interest margins…

  9. … and costly…

  10. .. but still profitable

  11. Banking is also expensive for customers…

  12. …with negative repercussions for access Share of population unable to afford checking account fees Malawi Uganda Sierra Leone Kenya Swaziland Nepal Cameroon Chile Madagascar Ghana South Africa 0 20 40 60 80 100 Percent

  13. Documentation requirements are another barrier

  14. Capital markets are even less developed

  15. Hope is in the air…

  16. Finance is more in line with economic development than before

  17. Progress has been widespread (1)

  18. Progress has been widespread (2)

  19. Africa in the current crisis • No direct impact • No toxic assets • Little if any household lending • Not as closely integrated • Indirect, second-round effects • Parent banks – not as much as feared • Real sector linkages (commodity and non-commodity exporters) • Remittance flows • Higher government financing needs • International capital flows • Parent banks at risk? Not the case • Reforms of regulatory frameworks

  20. Working in a new global environment • Globalization has brought many advantages, but also: • Drying up of global capital funds • No alternative to globalization in most LICs, but: • More emphasis on domestic resource mobilization • More emphasis on regional integration

  21. Foreign banks across the developing world

  22. Regulatory reform in the North - the downsides of heavy regulatory hand • Rent seeking, corruption, political capture • Killing off markets – caveat emptor • Negative repercussions for access to finance • Consumer protection vs. systemic risk • Pyramids vs. derivative markets

  23. Role of government – has the paradigm shifted again? • Role of markets vs. government in the current crisis • Role of government in crisis resolution vs. permanent role of government in financial sector • Activism vs. modernism

  24. Regulatory lessons from the big crisis - from Pittsburgh to Lilongwe • Macro-prudential supervision • Do LIC supervisors have the necessary information • Pro-cyclical capital regulation? Benchmark in LICs? • Boundaries of regulation • Heavy regulatory hand called for? • Benefits of securitization • Restrictions on certain activities • Strengthening prudential regulation • LICs typically more conservative anyway • How much information can LIC supervisors get and process? • Role of credit rating agencies • Hmmm…. • Role of consumer protection, financial literacy, disclosure

  25. Cooperation for large multi-national banks • MoUs??? Colleges of supervisors?? • Can we apply Coase theorem? • Incentives!!! Resources!! • The role of IFIs • Long: ring-fence, short: branches • Contingency planning • Old vs. new foreign banks • Cooperation among LICs

  26. Regional integration • Unfulfilled potential • Over-ambition might be a problem – focus on subregions, different speeds • Benefits from technical cooperation • Harmonizing regulatory frameworks • Branches instead of subsidiaries • Reap benefits of scale economies • Important: adjust financial safety net accordingly (see problems in Europe) • Intra-regional capital account liberalization

  27. Looking beyond stability • Even in these times… • Fostering financial development and access is important • In most countries, it is central bank that is natural champion • Looking beyond the focus on tax havens and AML/CFT • Risk-based approach to not undermine access to financial services • The current crisis underlines the necessity for fundamental reforms in financial infrastructure as period of “cheap money” is over

  28. Over-leveraged or liquid (1)

  29. Over-leveraged or liquid (2)

  30. Financial sector policies in developing countries – looking ahead • Financial innovation • Use of technology • Competition from non-banks • Trade-off deepening/broadening and stability • One size does not fit all • Take trade-off into account in regulation • Focus on clients, less on institutions • Financial service provision • Consumer protection, transparency, over-indebtedness • Learn from each other

  31. Who does what? • Looking beyond G20 • Role for WB to represent non-G20 • Complementary role for bilaterals in G20 (DfiD, BMZ,AFD etc.) • What kind of assistance? • Look beyond sub-sectoral support • Linking diagnostics (FSAP – new model?) with technical assistance • Move beyond (away?) from international standards • Focus more on big-picture financial sector development policies

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