The access landscape and the challenges to financial

sector development in East, Central and Southern Africa

Mark NapierFinMark Trust

7 May 2007Livingstone

Outline

Landscape of access – African countries compared through FinScopeAnalysis partly funded by:

Comments on the book Challenges

What is FinScopeTM?

FinScopeTM, a FinMark Trust initiative, is a nationally representative study of

consumers' perceptions on financial services and issues, which creates insight to how

consumers source their income and manage their financial lives. The sample covers the

entire adult population, rich and poor, urban and rural, in order to create a segmentation,

or continuum, of the entire market and to lend perspective to the various market

segments.

FinScope coverage - current and under way

Africa

2004Botswana2004

Namibia

2005Zambia

2006Kenya

2006South Africa

2006Tanzania

2006Uganda

2008Ghana

2008Nigeria

FinScope SurveysCountry year

FinScopeTM countries covered

YearSample

sizeAdult

Population

Botswana 2004 1,200 1

Namibia 2004 1,200 1

South Africa 2006 4,214 31

Kenya* 2006 3,894 19

Tanzania 2006 4,962 21

Uganda 2006 2,959 8

Zambia 2005 3,998 6

22,427 86 m

Dataset of hundreds of variables for these 22,000 respondents. Note: Kenya—FinAccess; Uganda—country results to be released in May 2007

FinScopeTM countries compared

The countries fall into two groups by income, financial sector development and development

status

Status GNIpc $

Bank branches/100,000

Botswana MIC 5,180 3.77

Namibia MIC 2,990 4.47

South Africa MIC 4,960 5.99

Kenya LIC 530 1.38

Tanzania LIC 340 0.57

Uganda LIC 280 0.53

Zambia LIC 490 1.52Source: GNIpc: WDI (2005); Bank branches: Beck et al (2005)

Landscapes of access compared

% using at least one product in each categoryNote: credit likely undercounted; and transactions includes sending remittances

Landscape of access

0.0

20.0

40.0

60.0

Transactions

Savings

Credit

Insurance

All Southern Africa Zam, Tz, Ken

Access strands compared

Note: some definitional differences between the countries

ACCESS STRANDS

0% 20% 40% 60% 80% 100%

SA

NAMIBIA

BOTSWANA

KENYA

TANZANIA

ZAMBIA%

ad

ult

s

Formally included Semi formally

Informally included Excluded

The vast majority (52m people) is unbanked, although this differs

regionally

% Banked— Zam, Tz, Ken (3)5,585,116, 12%

2,275,045, 5%

39,037,369, 83%

% Banked- all (6)

22,551,950, 28%

6,034,371, 8%51,778,002, 64%

Banked Previously banked Never banked

% Banked - Southern Africa (3)

16,966,833, 51%

3,759,326, 11%

12,740,634, 38%

The access frontier for banking in Zambia

Total marketTotal market

Currently has / uses the product

Currently has / uses the product

Does not have / use the productDoes not have / use the product

Analysis by Illana Melzer, of Eighty20, based on a paper entitled “The Access Frontier as an Approach and Tool in Making Markets Work for the Poor” by David Porteous – see www.finmarktrust.org.za

Does not have access to the

product

Does not have access to the

product

Too poorToo poor

AwarenessAwareness

Physical accessPhysical access

Can’t affordCan’t afford

Market redistribution

zone

Market development

zone

Has access to the product but does not use it

Has access to the product but does not use it

Does not want the productDoes not want

the product

Potential usersPotential users

Market enablemen

t zone

Don’t have National

Registration Card

Don’t have National

Registration Card

6,024,986

866,525

5,158,461

111,518

5,046,943

1,103,124

3,943,819

2,072,125

551,562

2,806,034

669,108

18,084

93,434

111,518

Access frontier - Zambia

The power of repeated surveys: trend and greater accuracy

Number & % banked in South Africa: FinScope SA 2003-2006

Note – 2003 number is 18+, 2004-2006 16+)

10

11

12

13

14

15

16

17

2003 (18+) 2004 (16+) 2005 (16+) 2006 (16+)

mil

lio

n

44%

46%

48%

50%

52%

number banked % banked

Note: Southern Africa=% with cell access; East Africa=% owning cell

Given increasing pervasiveness, there is potential for leapfrogging through mobile

financial services

% unbanked with cell phones

0.0

10.0

20.0

30.0

40.0

ALL Southern Africa Zam, Tz, Ken

ALL Southern Africa Zam, Ken, Tz

Views on Making Finance Work for Africa ()

Line between “growth” and “outreach” increasingly indistinct – a BOP story Institutional form matters less

Commercial banks reach more people than MFIs

Views on Making Finance Work for Africa ()

Line between “growth” and “outreach” increasingly indistinct – a BOP story Institutional form matters lessComplementarity of informal and formalDonor funds going into successful MFIs – why?

Need for “short cuts” – framework approaches can overwhelm

Inclusiveness “…a criterion against which policy stances must be evaluated”…but what does inclusiveness mean?

Regional approaches: overcoming the diseconomies of insufficient scale

Innovation focus – MICs need innovators too!

Views on Making Finance Work for Africa (?)

Lack of emphasis on creation of demand side dataPicture of consumer engagement – especially

critical for service providersHighlights niches

Lukewarm on the value of “moral suasion” – the Charter approach

Access charters

SA was pioneer – but replicable elsewhere (NB Namibia)

Access commitments are universally relevant Vision [of inclusiveness] and “route map” Can spur innovation (Mzansi basic bank account,

Zimele insurance standards) Will create sense of common purpose between

stakeholders – consensual not confrontational “Short cut” – but can be reinforced by legislation

Views on Making Finance Work for Africa (?)

Lack of emphasis on creation of demand side dataPicture of consumer engagement – especially

critical for service providersHighlights niches

Lukewarm on the value of “moral suasion” – the Charter approach

Value of external agency – we agree, but:Local champions, or regional specialists, need

to be supported – unique role Incoming FIs should play a role in market

development - a quid pro quo for market access

Obstacles

Informational barriers Regulatory barriers Physical access barriers Affordability barriers Financial literacy barriers

General living circumstances contribute greatly too – (health and education priorities,

societal obligations, lack of economic opportunity – link between FSD and MDGs

Obstacle 1 – Lack of information

A need for intervention at all levels Funding researchBuilding capacity for research, statistical

know-how and data analysisPublic good, private benefit

A co-ordinating role for regional bodies (eg SADC)?APRM?

Obstacle 2 – regulatory barriers

Inappropriate or absent regulation AML/”heavy” MFI regulation“Two-edged sword” of global citizenshipMisplaced emphasis on stability at the

expense of access Regulatory stasis – peer reviews and “short cuts”

neededEntrenched interestsCapacity constraints (donor solutions?

exchange programmes?)

Obstacle 3 – physical access barriers

Massive gaps in outreach Tanzania – 63 ATMs in the country, one for every

200,000 sq km (2003/4 data derived from Beck etc.) 20% of Tanzanians say they don’t bank because “the

bank is too far from home” Only 45% of Botswana’s population live where there is a

permanent banking presence (Jefferis 2007)

Capital investment deficit … ….but distributed banking techniques also

needed – the promise of mobile solutions, branchless banking etc.Regulatory space needed (including freeing up

access to payment systems)

Obstacle 4 - affordability

Indistinct, but discernible, connection between bank profitability, bank fees and access levels

“I don’t have a job”/”I don’t have regular income” more dominant than bank charges alone…BUT… Affordability seen more broadly than just charges and

fees Charges and fees a big determinant in the choice of

banking institution (the MAIN consideration according to FinScope Botswana)

Banking is much more profitable in SSA than in other emerging markets Botswana RoA 4.2%, Zambia RoA 5.2%, Emerging

Markets excl Africa 1.4% (IMF data 1999-2003, quoted in Jefferis, 2007)

Spreads make the deposits business very attractive....

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Deposits Net Liquidity Loans Deposits Net Liquidity Loans

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Key balances to manage (2006 - Kwacha billions) Yield on key balances (2006)

spread 12%

spread 6%

Source: Draft supply side study prepared for the Governrnent of Zambia’s FSDP by Oxford Policy Management

. . . and fee income helps to anchor the banking business on

deposits

WHOLE BANKING SYSTEM - NET INCOME AFTER PROVISIONS (2006 - K bns)

Loans, 101

Treasury, 154

Deposits, 983

Implications for Zambia

Assuming that people would be prepared to spend up to 2% of their income on banking*, as many as 2.5m Zambians may be automatically excluded

Low incentives for Zambians to save – NB banks pay out K0.12trn in deposit interest but charge K0.32trn on those same deposits

High levels of “previously banked” – 1 person for every 2 banked is “previously banked”

300,000 salaried employees do not have a bank account

Exclusionary practices have simply encouraged competition: 200,000 clients of commercial microlenders in

only 5 years (cf. 870,000 “banked”)* A proxy from the telecoms industry

Obstacle 5 – Financial literacy barriers

Major challenge across the region Need for coordinated national strategies

(including in schools curricula)National standards for CFL programmes,

monitoring etc. For many, barriers of understanding may be

greater than physical access barriers In Zambia, 77% have not heard of, or don’t understand

the term, ATM card – and 14% don’t understand the term “bank”

In Tanzania, 21% say they don’t bank because they don’t know how to open an account

In Kenya, 32% don’t know about insurance or how it works

Building inclusivity - challenges for the future

Information

Regulatory barriers

Affordability

Physical access

Financial literacy

Thank you

www.finmarktrust.org.

za