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Sub-Saharan banks flourish
Article by Vivek Rohra - March 11th, 2013


The poor in Africa represent a huge amount of capital waiting to be channeled into consumer and small-businesses loans, and for infrastructure development.

According to PricewaterhouseCoopers (PwC), 95 percent of the nearly 500 million adults in sub-Saharan Africa earning less than $10 a day have no access to bank accounts. If they did, the formal banking system could get its hands on as much as $59 billion in new deposits.

Now, however, this pool of wealth has intersected with advances in mobile-banking technology that makes it possible to use cellphones for routine banking transactions, such as money transfers and deposits, instead of conventional city bank branches. This has sparked a revolution in banking from Nigeria to Kenya.

African banks are expanding outside their borders like never before. Rapid technological development is reducing transaction costs, bridging geographical strains and attracting investment from large financial institutions.

According to TIME Magazine, “At current growth rates, Africa’s financial services sector could make up around 20 percent of the continent’s collective GDP within the next decade, compared to the 10 percent of today.”

“Banking the vast, unbanked African population is the first step in building effective financial institutions,” said Utsav Malik, president of Baruch College’s Wall Street Club.

“Simple customer deposits are essential to raise bank capital which can then be lent to entrepreneurs and businesses. And access to capital is fundamental to economic growth and prosperity.”

The reason why Western multi-national lenders with operations in the region like BNP Paribas, Credit Lyonnais and Barclays have not pursued similar expansion strategies is that the Eurozone meltdown has damaged their appetite for new and potentially risky ventures in countries they know little about.

On the other hand, Attijariwafa, a Moroccan bank and Africa’s biggest lender by assets, is pursuing a diversification strategy that draws heavily on what it describes as “south-to-south co-operation.”

This, in, part means focusing on the softer side of banking by tapping into the cultural experiences and challenges it shares with its African neighbors, including a common French-colonial history.

Kumail Akbar, a consultant at OC&C Strategy Consultants, a leading European management consulting firm, said, “I believe a call for some kind of an inter-African banking union with state backing would raise some trust in the system.

If this African union provides deposit insurance or investment support like the Federal Deposit Insurance Corporation does to domestic creditors in America, it might solve the problem.”

The regional banks are largely following a bottom-up strategy to build their retail operations. They take deposits locally and woo corporate clients face to face.

The downside of the acquisition-led approach is demonstrated by South Africa’s Standard Bank, which has bought banks in Kenya and Nigeria, among other places.

Its return on equity for its African business would have been at 13 percent in the first half of 2012 had write-downs on the goodwill on its acquisitions not pushed it down to 10.6 percent.

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