AfDB-World Bank Study: The African Financial Sector Needs More Competition

06/06/2011
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To grow and improve its productivity, the African financial system needs more competition, say experts at the African Development Bank (AfDB) and the World Bank.

In a book titled Financing Africa: Through the Crisis and Beyond, published by Making Finance Work for Africa, an organization hosted by the AfDB, experts argue that increased competition would promote financial innovation and the adoption of new products and new technologies; this would ensure better service to customers and an expansion of these services to new clienteles.

How to get there? By way of regulation. "Fostering innovation implies a more open regulatory mindset”, say the experts, who emphasize the need for flexible regulation aimed at ensuring the stability of the sector, but also its ability to meet the challenges posed by the financial market, locally, regionally and internationally.

This expansion must be done while paying attention to the users of financial services. Adequate financial literacy should be infused to both businesses and households, notably through the development of financial skills and the establishment of frameworks for consumer protection.

Landscaping Africa’s Financial Systems

The book contains a series of indicators on access, size and efficiency of financial services in Africa. Today, African banking systems are stable, well-capitalized and have good liquidity levels. However, they lack depth, because they are too dominated by banks. The transactions are mostly short-term, which is hardly conducive to business development.

Financial systems also lack momentum and the penetration of bank branches per capita is well below the world average. Banking services are expensive and limit households’ access to basic financial services.

Thorsten Beck, Samuel Munzele Maimbo Issa Faye, Thouraya Triki, Financing Africa: Through the Crisis and Beyond, 2011.