Challenges for Financial Sector Reform in Africa Oliver S. Saasa

1. Challenges for Financial Sector Reform in AfricaOliver S. Saasa Premier Consult LimitedDiscussant World Bank Livingstone-Saasa

2. Fundamental messages from the Report worth stressing

3. 1 Finance is essential in transforming African economies • putting African countries on a stronger and sustainable growth path by opening-up business opportunities to a wider clientele effectively World Bank Livingstone-Saasa

4. Zambian example… • The Zambian financial sector is characterised by high cost of borrowing, thin capital markets and absence of financial services in most of the rural and peri-urban areas. Consequently, the financial system has not played a meaningful role in national development. World Bank Livingstone-Saasa

5. 2 • Africa needs more energetic and more innovative financial entrepreneurs • New technologies – using cellphones, internet and also new financial techniques World Bank Livingstone-Saasa

6. 3 • Reformers of African finance should have an eye on (a) the financing needs of sustained economic growth and (b) catering for the immediate needs of poor households and micro-enterprises. • The needs of “finance for growth” and “finance for all” need not be conflictual World Bank Livingstone-Saasa

7. 4 • Access to finance and cost of finance still a major constraint to operation and growth of African firms much more than is the case in other regions • Consequently, African firms finance about 68 per cent of their investment needs with internal funds. World Bank Livingstone-Saasa

8. 5 • The phenomenon of a missing middle in credit provision is real and must be addressed: • Medium and large firms are catered to by formal financial institutions, while micro-firms have often access to micro-finance institutions. But firms in between these categories have difficulty finding the funds to expand. World Bank Livingstone-Saasa

9. Elaboration on Main Challenges in Africa

10. Low access often reflect general economic conditions • Per capita income enhancement is essential • Minimum deposit balances are often set by banks at levels that are unattainable by the poor World Bank Livingstone-Saasa

11. Financial access is woefully limited especially in rural areas due to price and non-price barriers: • Over 700 dollars are required to open an account in Cameroon, an amount higher than the GDP per capita of that country. On the other hand, no minimum amounts are required in South Africa or Swaziland. World Bank Livingstone-Saasa

12. Fees to maintain a checking account exceed 25 percent of GDP per capita in Sierra Leone, while there are no such fees in the Philippines. • The fees for transferring 250 dollars internationally are 50 dollars in several African countries, but only 30 cents in Belgium. World Bank Livingstone-Saasa

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

14. In addition… • limited access to finance especially in rural communities is due to sparse population, low incomes and poor infrastructure • Weak delivery of finance for agriculture and the rural economy • Documentation requirements to open a bank account (especially in the context of money laundering prevention) could also be quite restrictive to financial access for a large section of the community. World Bank Livingstone-Saasa

15. These fees and administrative requirements have effectively prevented the poor from using checking or savings accounts. World Bank Livingstone-Saasa

16. Something that the report does not seem to have addressed sufficiently… Physical Infrastructure • The quality of physical infrastructure, such as electricity networks and communications network is associated with the costs of doing business for banks, necessitating higher minimum balances for savings accounts and higher fees on loans World Bank Livingstone-Saasa

17. The Way Forward(3 points…)

18. 1 Need for stronger underlying infrastructures, particularly in the information and legal dimensions World Bank Livingstone-Saasa

19. 2 • Strive, through enabling policy and regulatory environment, to increase access for households and micro, small and medium sized enterprises to formal financial services • Strategic role of African governments in providing a regulatory regime that adequately protects the depositors and guards against abuses of the financial system’s integrity (through money laundering) • Central bank supervisory role is strategic World Bank Livingstone-Saasa

20. 3 • Developing and reforming the financial sector is critical • Zambia Example: • The Financial Sector Dev. Program )FSDP) aims to, inter alia, improve the financial sector, focusing on developing the capital markets, enhancing the role of micro-financing in the economy, developing rural financing, and the strengthening banking and non-banking financial institutions. World Bank Livingstone-Saasa