Africa Renewal (United Nations)
Efam Dovi
4 November 2008
(Page 2 of 2)
In Uganda, according to an extensive survey reported by the UN Capital Development Fund (UNCDF), people with access to formal bank accounts saved three times more in the 12 months studied than those who held their assets in the "semi- and informal sectors."
The UNCDF noted in its 2004 report that in Rwanda about half a million savings passbook accounts, with an average account size of $57, pulled almost $40 mn into circulation in 2001. "Although this may not appear significant," argued the UNCDF, "proper circulation of these funds into credit products could have a significant multiplier effect in the Rwandan economy."
Banks reform and reach out
In many African countries, governments and banks are changing the way they do business. In Nigeria, a series of banking-sector reforms initiated in 2004 limited government ownership in banks and brought greater competition. As a result, bigger banks bought out smaller ones and new ones merged. Although the overall number of banks declined, most had a stronger capital base and the number of branches increased by over 600. With enhanced capacity, Nigerian banks started making inroads into other countries in the region. They introduced new products and services.
The Standard Trust Bank branch in Ghana, now United Bank of Africa, introduced a "zero-deposit" account, allowing people to open accounts without initially putting in any money, thereby increasing its customer base.
In Ghana, financial-sector liberalization has brought greater competition, forcing banks to be more innovative and to work harder to attract customers. In 2006, Barclays Bank, Ghana, started working with susu agents, who deposit the collective savings of their customers with the bank in return for a fee and access to a loan facility.
Susu is the oldest form of money-collecting system in Ghana. In such arrangements, groups of people regularly pay a fixed sum into a pool held by a susu collector. Each member of the group gets a turn to receive the entire sum at the end of a given cycle, for investment and other needs. In some cases, customers get their money back after every 31 days, minus a day's contribution to cover the expenses of maintaining the fund.
Many market women would rather save their money with a susu collector than leave their wares unwatched in the marketplace to make a trip to a bank. Unlike conventional bankers, susu collectors usually pass by each customer's stall or home to collect the daily, weekly or monthly contributions, depending on the terms. There is almost no paperwork involved for the customer. Collecting agents rely on personal relationships, trust and various forms of collateral to reach markets that are beyond the reach of formal banks.
There are an estimated 5,000 susu collectors in Ghana with more than 2 million customers. Barclays Bank is currently working with 100 agents and hopes to work with more.
Following a financial-sector reform in Benin in the 1990s, the government introduced a programme of rural savings and loan institutions to better serve the poor. "The economy grew at an annual rate of 5 per cent during the last five years as a result of these interventions," stated the 2004 UNCDF report. With the right financial policies and the provision of secure and accessible savings systems, the UNCDF observed, savings rates would improve and economies would grow through increased domestic investment.
To increase savings, "Banking regulations need to be adapted to encourage those micro-financing institutions with the capacity to legally mobilize savings from clients or the general public," says Mr. Thisen of the ECA.
Bringing back post office savings
For decades, governments have used their extensive networks of post offices to mobilize small amounts of savings and provide basic financial services in rural and urban areas. In recent years, financial-sector reforms in many African countries have expanded the range of products offered by these postal banks.
The Kenya Post Office Savings Bank, established in 1978, provides a range of services and operates an advanced banking system. Last year the Post Bank, as it is commonly known, mobilized KSh12 bn (US$1=68.7 Kenyan shillings) in savings and realized KSh174 mn in profits, mainly from investment of the funds. Bank managers believe the returns could be improved through further expansion and diversification of products and services. The bank is seeking an amendment in the country's Post Office Savings Act to enable it to offer loans and credit facilities to low-income earners and micro-enterprises.
The World Savings Banks Institute (WSBI) estimates that in some countries the number of postal savings accounts exceeds that of all deposit accounts with mainstream banks. Benin's postal savings bank managed roughly 360,000 savings accounts in 2001, compared with 162,000 deposit accounts in conventional banks. In Kenya, the number of postal accounts almost matched the total number of bank deposit accounts in 2003.
According to Hugues Kamewe, a financial sector adviser at the WSBI, postal savings institutions have a vital role to play in the economic and social infrastructure of African countries, where the majority of the economically active population does not have access to mainstream banks.
New technology helping
Recent developments in mobile phone technology can help expand financial access for the poor, and hopefully mobilize savings. In South Africa, the Democratic Republic of the Congo, Zambia and Kenya, mobile phone banking is taking services to remote areas where conventional banks have been physically absent or too expensive. Subscribers can open accounts, check their balances, pay their bills or transfer money (see Africa Renewal, January 2008).
Though few Africans have bank accounts, nearly 80 million have cell phones, according to the International Telecommunication Union. FinMark Trust, a research group seeking to make financial services more accessible, reports that 17 per cent of those who do not have bank accounts in Kenya and Botswana nevertheless own mobile phones. In Kenya, as many as 1 million people use M-Pesa, a mobile-payment scheme.
Aiming for investment
"Increasing savings and ensuring that they are directed to productive investment are central to accelerating economic growth," finds a 2005 report of the UN Department of Economic and Social Affairs, Mobilizing Domestic Resources for Development. It argues that "these objectives should therefore be central concerns of national policymakers."
Currently, however, African countries do not have the capacity to effectively channel domestic savings into productive investment because of "shallow financial systems" and ineffective financial institutions, notes Mr. Gayi of UNCTAD. He called for "innovative thinking," and suggested that countries set up a long-term investment fund. "Resources for this could be pooled from a wide array of financial-sector operators with large cash reserves, such as insurance companies, private banks or pension funds."
When there are commodity booms and unexpectedly high export earnings, Mr. Gayi says, "part of the windfall income can also be allocated to this fund" to kick-start the process. "Policies that help African countries enhance the mobilization and use of their domestic resources could be beneficial for the economy in general."
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