Africa: Finance for All

1. Africa: Finance for All Patrick Honohan Trinity College Dublin and The World Bank

2. For money doctors: Africa is a priority Access to Finance East Asia & Pacific Europe & Central Asia Latin America & Caribbean Middle East & North Africa South Asia Cost of Finance Sub-Saharan Africa (Average rating by surveyed firms of each item as an obstacle to business operation and growth)

4. Household Access to Finance

5. Access to Finance Distribution of countries in each region

7. Approaches (2): Activism(vs. Modernism) African environment (sparse population, low incomes, poor infrastructure) makes access problematic Mainstream banks etc have not delivered long term, risk finance; or any services for the majority (market failure) So new (or re-engineered) entrants with dedicated mission needed – To be patient, take risks, experiment with new technology including enhanced use of soft information/relationship lending – To take up the “fight for an inclusive financial system” (example: South Africa financial sector charter, 2003)

8. Activism presupposes governance (1) Activists are not restrained by immediate market pressures; they have chosen to plow money and effort into endeavors that the market has turned down. Willie Sutton effect To be even reasonably confident that these efforts and resources will not be wasted or subverted, the sponsoring agency must have good governance.

9. Governance issues

10. Governance issues

11. Governance issues

12. Activism presupposes governance (2) The Achilles heel of many interventions especially of DFIs – they may be better doing investment banking work… …with limited grant-giving or contingent liability component Exploit cross-country/regional frameworks to strengthen governance (development finance, banking, regulation) The social security fund as a natural provider of long-term and risk finance… … and increasingly paralleled by foreign including donor funding And some activism is counterproductive—notably tight interest ceilings

13. Finance for all (1): Technology innovations Mobile phones and internet overcoming isolation and costly teller services Weather and price insurance for farmers Some age-old techniques that mainstream banks have not hitherto bothered to introduce in Africa

14. Finance for all (2): Who should do what? Institutional choice for MF: build on existing diversity. E.g. both coops or and joint stock can play a role Mainstream banks mainly as wholesalers until and unless they can get costs down and improve relationship lending Donors/development partners: resources, innovation, independence (might partly compensate for local governance gaps) Governments—stay away from ownership, but actively create infrastructures and don’t choke with over-regulation