Financing Africa: Through the Crisis and Beyond

AfDB For too long, firms and households in Africa have faced severe constraints to afford- able 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 prod- ucts. 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 capi- talized 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 long- term 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 innova- tion. 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 exist- ing institutions and markets. Expanding provision of payment, savings and other financial services to the unbanked might mean looking beyond existing institu- tions, 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.

The full report is available here.

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