Washington, DC — The Permanent Mission of France to the United Nations sponsored a conference in January 2002 in New York on the new role of banks in financing development in Africa. The conference, organised by the French BRED Banque Populaire, was held in parallel with debates of the last Preparatory Commission for the UN's Conference on Financing for Development to be held in Monterrey, Mexico, in March. José Garson, BRED Banque's International Manager, participated in the New York conference and, as he told allafrica.com, he is going to Monterrey with a plan to bring together banks interested in financing development in Africa
Last month, you told the New York conference that Africa should not rely totally on the IMF and World Bank to finance its development. What alternative are you offering?.
Last October in Abidjan, Côte d'Ivoire, we presented the final report of a study that we carried out for the African Development Bank (ADB) on the role of banks in financing development in Africa. It took us one and a half years to complete the study and what we found raised concern about the estranged situation in which development banks find themselves in many African countries. We came up with several recommendations to the African Development Bank as well as to the different delegations that were invited to Abidjan.
One of the recommendations was that governments and central banks and multilateral institutions should engage more private banks and discuss with them the financing of development projects because these private banks are willing to go to great lengths to finance development if only they were given an opportunity to do so.
We also said that rehabilitation of the financial sector in Africa, considered a success given the sorry state of the banks in the 1980's, has been done in a very biased and incomplete way. Yes, the banks were rehabilitated. But on the other hand, they were put in a straitjacket and forced to finance only short-term activities. There was absolutely no provision for financing medium-term activities when medium-term thinking is something definitely needed for development. So we warned donors that unless they revisit the issue of banks in Africa, we would have a situation where banks will be sidelined and prevented from playing the role they should play.
It is usually taken for granted that banks around the world are involved in funding development. Are you saying that Africa presents an anomaly in this regard?
It does and it all started in the eighties where, in most countries, commercial, as well as development banks, went almost bankrupt. The IMF and the World Bank came in and liquidated institutions or rehabilitated those that could still function and they did so in a very short-term perspective. So in many countries today you have brand new banks that are equipped to finance short-term trade but absolutely no mechanism to help them finance medium-term activities. Development is about medium-term. So banks have been left out of the development game. In fact, a good indication of this situation is the draft on the basis of which delegates at the New York conference were working. The word 'bank' was not mentioned once in the 16-page draft that was supposedly devoted to development finance.
So how can those banks get back into the development business and who should set up mechanisms for medium-term development?
If I may take the example of South-East Asia and Europe, it was the governments, the central banks and the donors who set up those mechanisms, and little by little, the culture within banks changed as they discovered that there was new businesses, that development was good business so they started financing medium-term activities.
But the situation now is obviously different. Some African governments say that at a time when they are privatising their economies, they should not be expected to finance development as they had done before and that they would like to see the private sector take up some of those responsibilities.
Governments have since the 19th century been confronted with the situation where you either leave banks to their own devices and they will only finance short-term projects, just because they are forced to do so by the Central Bank; or you set up mechanisms that progressively encourage those banks to enter the medium-term business. So it's not a question of state intervention. It is a question of helping financial institutions to go into an area which they don't know and where they are not equipped to work. In Asia as well as in Europe, banks are now playing a development role as well as a commercial one.
So describe the way in which Bred Banque helps finance development in Africa?
Let me give you the example of a bank we worked with in Mauritania. I cannot reveal its name but I will describe what we did with them. This is a 100% commercial and profitable bank which, on the face of it, may lead one to think it is a typically selfish financial institution but that's not the case. In fact, the owners of the bank wanted to play a development role by opening branches in areas where there is absolutely nowhere for people to deposit their savings.
When we started working with them, we told them that one way to do it, which would be efficient for them and profitable for the poor, was to link up with micro-finance NGOs so that the NGOs act as branches, sub-contractors, so to speak. The NGOs in remote rural areas would collect savings, provide some credit and the whole thing would be linked up to the bank's headquarters in the capital, Nouakchott. That is what they are doing now. So you have a micro-finance programme which is not donor-driven but commercially-driven, and at the same time very useful in alleviating poverty in regions where the programme is implemented. The bank is quite happy to see that poor customers become less poor and at some point if they need the services of a commercial bank, they will get them.
Mauritania is a former French colony which still has strong economic and cultural ties with France. Does that make things easier for you as a French bank or do you go where it makes sense for you to do so, regardless of the country's background?
We go wherever we think development would be good business. Financing your neighbour's car is not necessarily good business for a bank and financing big companies are a big risk in Europe as well as in Africa. So development could be very good business, provided you know where you are putting your money and how you set up the system. In the case I described earlier in Mauritania, we provided technical assistance which was paid by the bank. So we played the role of donors but we did not provide money, we sold a service. That is in my view, a purely private-sector operation which could serve as an example for other operations. What I am saying is that we have had success in francophone Africa but some of our most successful partnerships were in countries like Uganda, Kenya, Tanzania, to name but a few.
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How much room is there for 'goodwill', so to speak, in this kind of development finance? Have you encountered bankers who want to finance projects to help their countries to do better or is 'profit' the overriding concern at the end of the day?
That is exactly our point. We found that there is an enormous amount of goodwill to finance development and this goodwill does not meet with a response from the other side. Some banks are eager to finance development if only because they want to be perceived as good 'citizens'. But we found is that donors are crowding out banks.
If you have a bank that, for profit reasons as well as for image reasons, wants to finance small enterprises with its own money and develop a system to do so and at the same time a donor comes in and tries to offer its line of credit, well the donor is most likely going to be chosen by the government concerned, rather than the programme set up by a commercial bank.
So donors like ADB and others have to reinvent themselves and try to find types of intervention that do not overlap with what commercial banks could and are willing to do.
How do you convince banks in Africa that they can enter into development partnerships without raising their suspicion that they could be taken over by larger banks from Europe or the United States?
Our statute says that we can never take any equity participation in any bank. We assist only. I think there are other banks doing the same, providing technical assistance, focusing the goodwill of the local banks on finance development. Of course, there are other institutions looking for other banks they could buy but that's a different situation.
