Financial Development, Financial Inclusion, and Growth in Africa - - PDF document

Finance for All: Promoting Financial Inclusion in Central Africa September 20, 2016 ECOWAS Regional Conference Dakar, Senegal 1

International Monetary Fund

African Department

Financial Development, Financial Inclusion, and Growth in Africa

Roger Nord Deputy Director African department IMF

ECOWAS Regional Conference, Dakar, Senegal, September 20, 2016 Outline

• 1. Financial development and growth

a c a de e op e t a d g o t

• 2. Financial inclusion in Africa
• 3. The role of technology: Lessons from Kenya
• 4. Policy implications

Finance for All: Promoting Financial Inclusion in Central Africa September 20, 2016 ECOWAS Regional Conference Dakar, Senegal 2

Financial development has supported growth and reduced its volatility in sub- g y Saharan Africa

10 15 20 25 Percent change in GDP Reducing borrowing constraints Reducing participation costs Increasing intermediation efficiency

Long-Term Impact on GDP of Relaxing Financial Constraints

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5 Kenya Mozambique Nigeria Uganda Zambia CEMAC WAEMU Sources: Dabla-Norris and others (2015); IMF country staff reports; and IMF staff calculations. Note: CEMAC = Economic and Monetary Community of Central Africa; WAEMU = West African Economic and Monetary Union.

Access varies significantly across SSA

Account at a formal financial institution(% age 15+), 2014

Account used to receive wages (% age 15+), 2014

Source: Findex.

Finance for All: Promoting Financial Inclusion in Central Africa September 20, 2016 ECOWAS Regional Conference Dakar, Senegal 3

The Role of Technology: Mobile Financial Services have significant potential in sub-Saharan Africa

Roughly 1 billion people have a mobile phone but no bank account (CGAP) SSA Africa leads the way fin the adoption of mobile banking Mobile banking helps reach the unbanked

10 20 30 40 50 60 70 Burundi Mauritius Togo Guinea Cameroon Congo, Rep. Benin Nigeria Burkina Faso Malawi Niger Madagascar Sierra Leone Senegal Gabon Congo, Dem. Rep. Namibia Mali Zambia Ghana South Africa Rwanda Botswana Zimbabwe Côte d’Iv oire Tanzania Uganda Kenya Percent of population, age 15+

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The Role of Technology: Lower transaction costs

Mobile money use has expanded rapidly… …thanks to low transaction costs.

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Finance for All: Promoting Financial Inclusion in Central Africa September 20, 2016 ECOWAS Regional Conference Dakar, Senegal 4 Case study: Kenya The Rapid expansion of transfers …

Kenya shows one of the highest share of population with access to financial services after South Africa… …to a large extent because of the success in making mobile-phone payments available to its population.

43 50 54 58 59 61 69 70 75 79 17 13 31 16 8 20 8 3 7 5 40 37 15 26 33 19 23 27 17 16

Nigeria 2012 Swaziland 2011 Uganda 2013 Tanzania 2013 Botswana 2009 Lesotho 2011 Zimbabwe 2014 Namibia 2011 Kenya 2016 South Africa 2013 Regional Comparison of Financial Access

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38 40 41 43 21 14 15 17 41 46 44 40 20 40 60 80 100

Zambia 2015 Malawi 2014 Ghana 2010 Nigeria 2012 Formal Informal Financially Excluded

Case study: Kenya … was rapidly followed by other services

The number of deposit accounts (million) and net loans and advances (Ksh billion) have increased too

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Finance for All: Promoting Financial Inclusion in Central Africa September 20, 2016 ECOWAS Regional Conference Dakar, Senegal 5 Promoting financial inclusion through innovation … Leveraging IT to E d S i

• Mobile phone-

facilitated micro payments

• New

framework for payments (including taxes, utility bills, etc) Customers can save, earn interest and access small loans Platform for new products (insurance products, consumer finance)

Expand Services

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Promoting financial inclusion through innovation …

R id i

Facilitation factors

Rapid expansion

• f mobile phone

use Exploit technology for service improvement Willingness to penetrate new markets Design of government policies g g p

• Allowed parallel payment system
• Secured customers funds

More financial products to low income HH

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Finance for All: Promoting Financial Inclusion in Central Africa September 20, 2016 ECOWAS Regional Conference Dakar, Senegal 6 Promoting financial inclusion through innovation … Innovative Financial Instruments : Support Infrastructure

Credit Reference Bureaus Credit Reference Bureaus

Reducing cost of doing business - Build information capital, reduce information search costs and problems associated with information asymmetry; and extending credit based on financial identity. This allows change in the collateral technology in use. So far CBK has licensed 3 credit reference bureaus.

Consumer Protection

The missing link in financial inclusion and innovation – i di l f i di encouraging transparent disclosure, fair treatment, dispute resolution and financial education/awareness and costs.

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Conclusions

Financial inclusion: critical role in sustainable development, Financial inclusion: critical role in sustainable development, reducing poverty, boosting shared prosperity Technology offers significant scope for rapidly expanding access to financial services, notably for households and SMEs Governments should focus on providing a supportive regulatory framework, ensuring competition among providers, and educating & protecting customers.

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Finance for All: Promoting Financial Inclusion in Central Africa September 20, 2016 ECOWAS Regional Conference Dakar, Senegal 7

Th k ! Thank you! www.imf.org